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Social Security and Inequality over the Life Cycle

Social Security and Inequality over the Life Cycle

(p.115) 4 Social Security and Inequality over the Life Cycle
The Distributional Aspects of Social Security and Social Security Reform
Angus DeatonPierre-olivier GourinchasChristina Paxson
University of Chicago Press

This chapter explores the way that the inequality of consumption behaves in a life-cycle model without bequests. It also investigates the consequences of Social Security reform for the inequality of consumption across individuals. Systems in which there is less sharing of earnings risk develop higher consumption inequality both before and after retirement. Asset inequality rises with age, but does so most rapidly in the cases where insurance is greatest, so that the differences in asset inequalities across the various schemes diminish with age. There is virtually no increase in consumption inequality before retirement, and very little after retirement, associated with assigning different consumers to different fixed interest rates. Moreover, assigning consumers to different but fixed rates of interest will not necessarily have the same influences as allowing the interest rate to vary randomly over time for individual consumers.

Keywords:   consumption inequality, life-cycle model, Social Security reform, earnings, retirement, consumers, asset inequality

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