Rocky mountains, smooth reception
We presented our newest study in welfare effects in social security reform at annual Midwest Macro conference, which this year took place at Utah State Univeristy. It was quite spectacular and we mean much more than the views of beautiful canyons and national forests in Rocky Mountains bordering Wyoming and Utah. Indeed, it has been a while since we experienced such an incredibly kind and insightful audience. The many talks by the participants were no less inspiring.
In this paper, we study interactions between progressive labor taxation and social security reform. Increasing longevity puts fiscal strain that necessitates the social security reform. The current social security is redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform which links pensions to individual incomes reduces distortions associated with social security contributions, but incurs insurance loss. We show that the progressive labor tax can partially substitute for the redistribution in social security, thus reducing the insurance loss.