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Article Review

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From the article entitled “Death and Taxes: Longer Life, Consumption and Social Security”, the authors sought to study the effects of mortality decline in the social security system. The main idea presented by the authors is that the age structure in the United States population is changing where the number of retirees is relatively higher compared to the number of workers and children. These changes mean that there is going to be a change in the funding of the social security system in the country. Demographers in the past have been focusing on the fertility changes as the main explanation for the changes in the age structure. However, this article sought to explain the effects of mortality decline or the increase in life span in the United States population.

The authors have analyzed the influence of a decline in the projected mortality on the long run financing of social security systems. In any stable population, mortality affects the distribution of age in two ways. The first way is that mortality affects the number of people who go through to the reproductive age hence the population growth is affected. Mortality also affects the normal life span of an individual. An increase in lifespan of a given population makes it younger since more individuals are able to reach the reproductive age and bear children. Looking at the population of United States a majority of the people reaches reproductive age hence an increase in lifespan makes the population old.

The authors have also identified the three stages in the economic life cycle of an individual. The first stage is childhood dependency where one’s consumption is more than the earnings hence they have to depend on others. The second stage is working years where in this stage, the earnings of an individual exceeds the consumption. Most people are able to save their earnings in this stage. The other stage is retirement years where the consumption is more than the earnings.

The mortality decline may affect the percentage of life at every stage of the cycle and everyone has a life cycle budgetary constraints. Basing their calculations on the population of United States in 1995, the authors calculated that a one year increase in average lifespan adds an extra year in the retirement phase hence the budget constraint is tightened. This means that individuals would have to add 0.8 percent of their wealth so as to maintain the consumption level. 

On the social security administration, an increase in life span means than the retirement benefits will have to be increased. An extra year increment in life span increases the retirement benefits more than the taxes. The life expectancy in the United States is expected to be 80.7 years by 2070 assuming that the mortality will fall in the 21st century as compared to the 20th century.  

The author’s arguments are convincing as more statistical information and calculations are shown throughout the article. The inclusion of other research models such as Lee-Carter forecast helps to substantiate the information provided. There are calculations that involve tax rates, age distributions and mortality forecast that are often used by economists. The authors have calculated the tax rate which will be required to maintain the social security’s budget. The tax rate has to go up if life span increases in the future. The data used by the authors is reliable as it is collected from different relevant sources.

The ideas presented by the authors are used to draw several conclusions such as the future generations will have to pay more taxes due to the increase in spending for entitlements. Also, the social security costs are expected to increase in the future and the budget tax rate will increase from 12 percent in 1997 to 20 percent in 2070.

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