ABSTRACT
The life-cycle theory of consumption suggests that individuals attempt to smooth out consumption by redistributing economic resources from periods of relatively high income to spells of low income. This chapter focuses on the role of Social Security in affecting the distribution of income over one's lifetime as well as in the general population at a given point in time. It reviews the life-cycle theory of consumption and the development and rationale for Social Security in the United States. The chapter discusses the potential impacts of Social Security on savings and labor supply decisions and examines the redistributive effects of this institution both across and within generations. It also focuses on the effects of Social Security benefits on elderly incomes by demographic group both in terms of their antipoverty effects and in the degree to which different groups depend on these benefits. The chapter briefly mentions other aspects of the Social Security program which provide value to participants.
