The Market Value of Social SecurityCoauthor(s): John Geanakoplos.
We also examine three policy changes that have been proposed to bring the system back into balance: increasing payroll taxes, decreasing benefits, and indexing benefits to prices rather than wages. For the first, we find that even though adjusting for risk reduces the present value shortfall, it actually increases the tax rate increase necessary to bring the system back into balance. For the second proposal, risk adjustment has ambiguous effects on the magnitude of benefit cuts. For the third proposal we find, contrary to the results of models that ignore risk, that linking benefits to prices instead of wages would increase the cost of Social Security benefits and thus increase the shortfall.
Source: Working paper
Geanakoplos, John, and Stephen Zeldes. "The Market Value of Social Security." Working paper, Columbia Business School, July 11, 2011.
Date: 11 7 2011