tailieunhanh - Lecture note Public finance (10th Edition) - Chapter 11: Social security

In this chapter, the following content will be discussed: Why have social security? Other justifications, fully funded plan, explicit transfers, distributional issues, other ways social security affects saving, retirement decisions, social security reform. | SOCIAL SECURITY Chapter 11 Social Security Expenditures (1939-2011) Source: Social Security Trustees [2012]. 11- Why Have Social Security? Consumption Smoothing and the Annuity Market How Social Security works Annuity Consumption smoothing Adverse Selection and the Annuity Market Asymmetric information Adverse selection 11- Other Justifications Lack of foresight and paternalism Moral hazard Economize on decision-making and administrative costs Income Redistribution Improve the Economic Status of the Aged 11- Fully Funded Plan Period 1 Period 2 Period 3 Period 4 contribute benefits contribute benefits contribute benefits The Greatest Generation The Baby Boom Generation Generation X Work Retire Dead Unborn Work Work Retire Still Dead Dead Childhood Childhood Retire 11- Each generation’s benefits based on deposits it made during working life plus accumulated interest Period 1 Period 2 Period 3 Period 4 The Greatest Generation The Baby Boom Generation . | SOCIAL SECURITY Chapter 11 Social Security Expenditures (1939-2011) Source: Social Security Trustees [2012]. 11- Why Have Social Security? Consumption Smoothing and the Annuity Market How Social Security works Annuity Consumption smoothing Adverse Selection and the Annuity Market Asymmetric information Adverse selection 11- Other Justifications Lack of foresight and paternalism Moral hazard Economize on decision-making and administrative costs Income Redistribution Improve the Economic Status of the Aged 11- Fully Funded Plan Period 1 Period 2 Period 3 Period 4 contribute benefits contribute benefits contribute benefits The Greatest Generation The Baby Boom Generation Generation X Work Retire Dead Unborn Work Work Retire Still Dead Dead Childhood Childhood Retire 11- Each generation’s benefits based on deposits it made during working life plus accumulated interest Period 1 Period 2 Period 3 Period 4 The Greatest Generation The Baby Boom Generation Generation X Work Retire Dead Unborn Work Work Retire Still Dead Dead Childhood Childhood Retire contribute benefits contribute benefits contribute benefits benefits Pay As You Go (or Unfunded) System 0 11- Each generation’s benefits come from tax payments made by current workers Period 1 Period 2 Period 3 Period 4 The Greatest Generation The Baby Boom Generation Generation X Work Retire Dead Unborn Work Work Retire Still Dead Dead Childhood Childhood Retire contribute benefits contribute benefits contribute benefits benefits Today’s Partially Funded System 0 Baby Boomers and Gen X are also contributing to their own retirement 11- Explicit Transfers Benefits for dependents and survivors (1939) Supplemental Security Income 11- Benefits How to calculate benefits AIME (Average Indexed Monthly Earnings) – average monthly earnings in 35 highest paid years Wages indexed for inflation Ceiling on AIME – up to tax ceiling 0 11- Benefit Structure If AIME < $711 .