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The effects of collecting income taxes on Social Security benefits

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TLDR
In this paper, a detailed life-cycle model of labor supply, saving, and Social Security claiming is presented to assess the impact of Social Security benefits subject to income taxation, a provision that can significantly increase the marginal income tax rate for older individuals.
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This article is published in Journal of Public Economics.The article was published on 2017-01-26 and is currently open access. It has received 32 citations till now. The article focuses on the topics: Gross income & State income tax.

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Code and data files for "Consumption over the Life Cycle: How Different is Housing?"

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Health, health insurance, and retirement: a survey

TL;DR: The mechanisms through which health affects retirement are described and how these mechanisms interact with public pensions and public health insurance are discussed.
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Birth Order and Health of Newborns: What Can We Learn from Danish Registry Data?

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Learning intensity effects in students’ mental and physical health – Evidence from a large scale natural experiment in Germany

TL;DR: In this article, the authors analyzed the health effects of a recent education reform in Germany exposing students to increased learning intensity and found that the reform significantly reduced adolescents' self-rated mental health status.
References
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Journal ArticleDOI

Consumption Over the Life Cycle

TL;DR: In this paper, a structural model of optimal life-cycle consumption expenditures in the presence of realistic labor income uncertainty is proposed. But the model is not suitable for the general population.
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Frontiers of business cycle research

TL;DR: In this paper, recursive methods for computing Equilibria of business cycle models are described. But they are not suitable for non-Walrasian economic models with imperfectly competitive product markets.
Posted Content

Precautionary Saving and Social Insurance

TL;DR: In this article, a life-cycle model was proposed to replicate observed patterns in household wealth accumulation after accounting explicitly for precautionary saving and asset-based means-tested social insurance, and they demonstrated theoretically that social insurance programs with means tests based on assets discourage saving by households with low expected lifetime income.
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Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption

TL;DR: In this paper, the authors proposed a method for computing tax rates using national accounts and revenue statistics. And they used this method to construct time-series of tax rates for large industrial countries.
ReportDOI

Precautionary Saving and Social Insurance

TL;DR: In this article, the authors argue that a life cycle model can replicate observed patterns in household wealth accumulation after accounting explicitly for precautionary saving and asset-based, means-tested social insurance and demonstrate theoretically that social insurance programs with means tests based on assets discourage saving by households with low expected lifetime income.
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Frequently Asked Questions (11)
Q1. What contributions have the authors mentioned in the paper "The effects of collecting income taxes on social security benefits" ?

To assess the impact of this tax, the authors construct and calibrate a detailed life-cycle model of labor supply, saving, and Social Security claiming. 

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. 

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. 

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. 

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. 

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. 

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. 

Because older households are slow to downsize their homes, the empirical life-cycle profile of housing consumption is flat at older ages (Yang, 2009). 

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. 

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. 

Consistent with the presence of fixed costs, in their model the employment elasticities are significantly larger than the elasticities for hours worked by workers. 

Trending Questions (1)
Why does my Social Security tax change throughout the year?

We find that in a long-run stationary environment, replacing the taxation of Social Security benefits with a revenue-equivalent change in the payroll tax would increase labor supply, consumption, and welfare.