Abstract
We analyze in three steps the influence of the projected mortality decline on the long run finances of the Social Security System. First, on a theoretical level, mortality decline adds person years of life which are distributed across the life cycle. The interaction of this distribution with the age distribution of labor earnings minus consumption, or of taxes minus benefits, partially determines the corresponding steady state financial consequences of mortality decline. The effect of mortality decline on population growth rates also matters, but is negligible in low mortality populations. Second, examination of past mortality trends in the United States and of international trends in low mortality populations, suggests that mortality will decline faster than foreseen by the Social Security Administration s forecasts. Third, we combine the work of the first two parts in dynamic simulations to examine the implications of mortality decline and of alternative forecasts of mortality for the finances of the social security system. Also, we use stochastic population forecasts to assess the influence of uncertainty about mortality decline on uncertainty about finances; we find that uncertainty about fertility still has more important implications than uncertainty about mortality, contrary to sensitivity tests in the official forecasts.
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We are grateful to Timothy Miller, Michael Anderson, and Bryan Lincoln for assistance. Two anonymous referees, John Wilmoth, and Kenneth Wachter made helpful comments on an earlier draft. Lee’s research for this paper was funded by Grant AGl176l from the NlA. Tuljapurkar’s research for this paper was funded by a Grant HD32124 from NICHD. Wealso acknowledge support from the University of California-Berkeley’s Center for the Economics and Demography of Aging.
An erratum to this article is available at http://dx.doi.org/10.1007/BF03208771.
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Lee, R., Tuljapurkar, S. Death and Taxes: Longer life, consumption, and social security. Demography 34, 67–81 (1997). https://doi.org/10.2307/2061660
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DOI: https://doi.org/10.2307/2061660