TY - JOUR AU - Deaton,Angus AU - Gourinchas,Pierre-Olivier AU - Paxson,Christina TI - Social Security and Inequality over the Life Cycle JF - National Bureau of Economic Research Working Paper Series VL - No. 7570 PY - 2000 Y2 - February 2000 UR - http://www.nber.org/papers/w7570 L1 - http://www.nber.org/papers/w7570.pdf N1 - Author contact info: Angus S. Deaton 328 Wallace Hall Woodrow Wilson School Princeton University Princeton, NJ 08544-1013 Tel: 609/258-5967 Fax: 609/258-5974 E-Mail: deaton@princeton.edu Pierre-Olivier Gourinchas Department of Economics University of California, Berkeley 530 Evans Hall #3880 Berkeley, CA 94720-3880 Tel: 510/643-0720 Fax: 510/642-6615 E-Mail: pog@econ.berkeley.edu Christina Paxson Office of the President Brown University Box 1860 Providence, RI 02912 Tel: 401/863-1979 E-Mail: christina_paxson@brown.edu M1 - published as Angus S. Deaton, Pierre-Olivier Gourinchas, Christina Paxson. "Social Security and Inequality over the Life Cycle," in Martin Feldstein and Jeffrey B. Liebman, editors, "The Distributional Aspects of Social Security and Social Security Reform" University of Chicago Press (2002) AB - This paper examines the consequences of social security reform for the inequality of consumption across individuals. The idea is that inequality is at least in part the result of individual risk in earnings or asset returns, the effects of which accumulate over time to increase inequality within groups of people as they age. Institutions such as social security, that share risk across individuals, will moderate the transmission of individual risk into inequality. We examine how different social security systems, with different degrees of risk sharing, affect consumption inequality. We do so within the framework of the permanent income hypothesis, and also using richer models of consumption that incorporate precautionary saving motives and borrowing restrictions. Our results indicate that systems in which there is less sharing of earnings risk such as systems of individual accounts produce higher consumption inequality both before and after retirement. However, differences across individuals in the rate of return on assets (including social security assets held in individual accounts) produce only modest additional effects on inequality. ER -