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64 Soc. Sec. Bull. 57 (2001-2002)
Social Security: A Financial Appraisal for the Median Voter

handle is hein.journals/ssbul64 and id is 181 raw text is: I  PE SPCIE

Calculations of the median
voter ' return from investing
in Social Security suggest that
for a majority of voters the
U.S. Social Security system
provides higher ex-post, or
actual, returns than
alternative assets.
Acknowledgments: I would
like to thank Sergi Jimenez Mar-
tin, Barbara Petrongolo, and two
anonymous referees for helpful
comments. Susana Sanchez
Gomez provided excellent re-
search assistance.
*The author is a Research
Fellow at IGIER, Universit.
Bocconi and Center for Economic
Policy Research (CEPR).

Social Security: A Financial Appraisal
for the Median Voter
by Vincenzo Galasso *


Several explanations have been pro-
posed for why voters continue to
support unfunded social security
systems. Browning (1975) suggests
that the extremely large unfunded
pension systems of most democracies
depend on the existence of a voting
majority composed of middle-aged and
older people who fail to fully internalize
the cost of financing the system. In
fact, when voting, economically rational
workers consider only their current and
future contributions to the system and
their expected pension benefits-not
their past contributions, which they
regard as sunk costs. If, for a majority
of voters, the expected continuation
return from social security exceeds the
return from alternative assets, an
unfunded social security system is
politically sustainable.
This article explores the validity of
Browning's proposition by quantifying
the returns that U.S. voters in presi-
dential elections from 1964 to 1996
have obtained, or expect to obtain,
from Social Security. Did invest-
ments in Social Security outperform
alternative forms of investment, such
as mutual funds or pension funds, for a
majority of the voters? What can be
expected for the future?

The U.S. Social Security system
redistributes income within age cohorts
on the basis of sex, income, and marital
status. To account for some of these
features, the median voter is represented
by a family unit whose members-a
husband who accounts for 70 percent of
household earnings and a wife who
accounts for 30 percent-make joint
economic and voting decisions. Thus,
retirement and survival benefits paid out
to the spouse of an insured worker can
be included in the calculation of Social
Security returns. Interval estimates of
voters' family incomes from the U.S.
Census Bureau were used to obtain the
median voter's household earnings. The
median voter's age is derived from the
ages of those who voted in presidential
elections, not from the ages of the entire
The median voter's contributions to
Social Security are the product of the
joint employer/employee Old-Age and
Survivors Insurance (OASI) tax rate and
employee earnings. Data on actual
contributions are available for median
voters in the 1964 to 1976 elections;
Social Security Administration (SSA)
estimates are used for future tax rates
and average wage growth rates. Data on
actual old-age, retirement, and survivor
benefits, as well as estimates of future
benefits, are also available from SSA.

Social Security Bulletin • Vol. 64 ° No. 2 ° 2001/2002                     57

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