Why do voters support unfunded social security systems? Browning (1975) suggested that, since voters consider past contributions as a sunk cost, unfunded systems may outperform alternative assets. To quantify the relevance of Browning's argument I calculate the return from “investing” in social security for the median voter at US Presidential elections from 1964 to 1996. The continuation internal rate of return ranges from 5.7% in 1984 – 43 year old median voter – to 9.8% in 1964 – 46 year old. In ex-post returns social security outperforms the Dow Jones Industrial Average for the 1964 and 1968 median voters, is equivalent for the 1972, and slightly underperforms it for the 1976.
The US Social Security: A Financial Appraisal for the Median Voter
GALASSO, VINCENZO
2002
Abstract
Why do voters support unfunded social security systems? Browning (1975) suggested that, since voters consider past contributions as a sunk cost, unfunded systems may outperform alternative assets. To quantify the relevance of Browning's argument I calculate the return from “investing” in social security for the median voter at US Presidential elections from 1964 to 1996. The continuation internal rate of return ranges from 5.7% in 1984 – 43 year old median voter – to 9.8% in 1964 – 46 year old. In ex-post returns social security outperforms the Dow Jones Industrial Average for the 1964 and 1968 median voters, is equivalent for the 1972, and slightly underperforms it for the 1976.
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