Center for Growth and Opportunity (CGO) Academic Director and Utah state University Professor Frank Caliendo and Professor of Public Finance Emeritus at the Hebrew University of Jerusalem Eytan Sheshinski‘s working paper for the CGO, Social Security and the Increasing Longevity Gap, was published in the Journal of Public Economic Theory.
The paper contributes to the discussion about Social Security reform by developing a new measure of the progressivity of a Social Security system. The authors use this new measure to show that the growing gap in life expectancy between low-income and high-income Americans reduces the progressivity of the Social Security system by approximately three-quarters.
Using a common macroeconomic technique called a life-cycle model, their research finds that rational, forward-looking individuals would give up 0.8% of their lifetime consumption to live in a world with targeted tax reform to the Social Security system and 3% of their lifetime consumption to live in a world with targeted benefit reform. These findings suggest significant welfare improvements may be possible with other potential reforms.