Q2. What is the effect of the Earnings Test on benefits?
Because the effects of benefit taxation are bounded by the total amount of benefits, the reduction of benefits through the Earnings Test attenuates the (immediate) effect of the benefits tax.
Q3. What is the effect of benefit taxation on current work?
Because the effect of benefit taxation is capped by the size of the benefit itself, the Earnings Test reduces the impact of benefit taxation on current work, by reducing current benefits, and it increases its effect on future work, by increasing future benefits.
Q4. Why is the welfare system fixed throughout the experiment?
Because their equilibrium concept is that of a small open economy with no capital adjustment costs, the capital-labor ratio and pre-tax wage remain fixed throughout their experiments.
Q5. What is the likely alternative to the Social Security tax?
Because the revenues raised by taxing Social Security benefits are dedicated to the Social Security and Medicare trust funds, the most likely alternative to this tax is the payroll tax, the principal revenue source for the two trust funds.
Q6. How many elasticities are there for older women and men?
Examing the effects of income taxes, Alpert and Powell (2016) estimate participation elasticities for older women and men of 1.2 and 0.7, respectively.
Q7. How does the model predict the ratio of median assets to median earnings?
The model predicts that for ages 40-49, the ratio of median assets to median earnings is 2.28; the corresponding ratio from the data is 2.75.
Q8. Why is the consumption profile flat at older ages?
Because older households are slow to downsize their homes, the empirical life-cycle profile of housing consumption is flat at older ages (Yang, 2009).
Q9. How do the authors capture the long tail in the distribution of medical expenses?
As in Kitao (2014), the authors capture the long tail in the distribution of medical expenses by using: a small shock with a 60% probability, a medium shock with a 35% probability, and a large shock with a 5% probability.
Q10. How do the authors increase the autocorrelation for the log of the wage shock?
In this exercise, the authors increase the autocorrelation pa-43rameter for the log of the wage shock η from its benchmark value of 0.97 to 0.999.
Q11. What is the reason for the large employment elasticities?
Consistent with the presence of fixed costs, in their model the employment elasticities are significantly larger than the elasticities for hours worked by workers.