Income redistributive effects of proposals for Social Security reform

In recent years, Social Security is under scrutiny for reform due in part to fiscal imbalance projected in the near future. In this circumstance, many experts on the program proposed various reform plans based on their own perspectives. This study investigates redistributive effects of three reform plans proposed by the 1994–96 Advisory Council, which are most widely-known and reflect main features of other reform proposals.;This study utilizes the Panel Study of Income Dynamics (PSID), in which the 26 single-year family files are merged with the cross-year individual files for the years 1968 to 1993. The sample is comprised of 1,506 individuals who have remained in the PSID sample for the entire period and whose relationship to head of households is either husband or wife for the entire period. Multiple imputation method is used to impute earnings for the years beyond the sample period. Also, this study utilizes the Gini decomposition technique to examine redistributive impact of various reform options in the three plans.;The results indicate that in terms of money's worth, the Personal Security Accounts (PSA) plan does the best, followed by the Individual Accounts (IA) plan and the Maintain Benefit (MB) plan. This is because the MB plan includes only reform options of reducing benefits, whereas the PSA and IA plan have an option of increasing net benefits such as individual accounts. In terms of the extent of progressivity, the IA plan does the best, followed by the PSA plan and the MB plan. The IA plan would make the current system a little bit more progressive, whereas the PSA plan and the MB plan would make the current program less progressive. In terms of redistributive effects, the MB plan shows the best pattern, followed by the IA plan and the PSA plan. The proportion of horizontal inequity is decreased both under the MB plan and the IA plan, whereas it is substantially increased under the PSA plan. Thus, researchers should consider these three aspects together in evaluating reform options.;Finally, this study concludes with a discussion on its strengths, limitations and policy implications.