Growth of Social Security: Dynamic Effect of Public Choice




Kim, Youngshin

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This dissertation addresses the question: why expenditure on social security retirement benefit in the U.S. has increased dramatically since World War II., even after the increased number of retired persons and inflation are adjusted for. This dissertation investigates the growth of social security retirement benefit in the U.S. from the perspective of public choice through theoretical analysis as well as empirical analysis with relevant time-series data sets. Chapter 1 explains the significance of social security, brief history of the U.S. Social Security, and its institutional features. Chapter 2 discusses relevant economics literature regarding the political economy of social security and empirical analysis including median voter theory and interest group theory. Chapter 3 develops the models used in this dissertation, based on the Congleton-Shughart approach. Chapter 4 examines data sets and replicates the Congleton-Shughart estimates, which are compared to new results using more advanced econometric techniques. Chapter 5 explores extended data sets, and presents new estimates of U.S Social Security growth obtained through various time series methodologies. This paper finds that both the median voter’s preference and political interest groups significantly influenced the growth of the real retirement benefits in the U.S. Social Security. It also shows the forecasted values by different models to find dynamic causal effect of a change in median voter’s constraints and of special interest group’s political influence on the benefit levels in Chapter 6. Chapter 7 analyzes legislation effects on social security from legislation adopted in 1983, the reform of the Greenspan Commission. It can be demonstrated that the Greenspan effect greatly improved the balance of the Trust Funds. Concluding remarks and useful policy implications are developed in Chapter 8. The analysis of this dissertation suggests that, although the politics may have changed, the political economy of social security implies that changes remain possible.



Social security, Public Choice, Political economy, Interest group, Median voter, Forecasting