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Projected U.S. Demographics and Social Security

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  • Mariacristina De Nardi

    (University of Chicago and Federal Reserve Bank of Chicago)

  • Selahattin Imrohoroglu

    (University of Southern California)

  • Thomas J. Sargent

    (Stanford University and Hoover Institution)

Abstract

Without policy reforms, the aging of the U.S. population is likely to increase the burden of the currently unfunded social security and medicare systems. In this paper we build an applied general equilibrium model and incorporate the population projections made by the Social Security Administration (SSA) to evaluate the macroeconomic and welfare implications of alternative fiscal responses to the retirement of the baby-boomers. Our calculation suggest that it will be costly to maintain the benefits at the levels now promised because the increases in distortionary taxes required to finance those benefits will reduce private saving and labor supply. We also find that the "accounting calculations" made by SSA underestimate the required fiscal adjustments. Finally, our results confirm that policies with similar long-run characteristics have very different transitional implications about the distribution of welfare across generations. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1999.0067
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 2 (1999)
Issue (Month): 3 (July)
Pages: 575-615

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Handle: RePEc:red:issued:v:2:y:1999:i:3:p:575-675

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  1. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, Springer, vol. 6(1), pages 83-114, June.
  2. Hansen, G D, 1993. "The Cyclical and Secular Behaviour of the Labour Input: Comparing Efficiency Units and Hours Worked," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(1), pages 71-80, Jan.-Marc.
  3. Cooley, T.F. & Soares, J., 1996. "Will Social Security Survive the Baby Boom?," Papers, Rochester, Business - General 96-01, Rochester, Business - General.
  4. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  5. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(401), pages 464-77, June.
  6. Larry E. Jones & Rodolfo E. Manuelli, 1990. "Finite Lifetimes and Growth," NBER Working Papers 3469, National Bureau of Economic Research, Inc.
  7. John B. Shoven & John Whalley, 1992. "Canada-U.S. Tax Comparisons," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number shov92-1.
  8. Laurence J. Kotlikoff & Kent Smetters & Jan Walliser, 1999. "Privatizing Social Security in the U.S. -- Comparing the Options," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 532-574, July.
  9. HUANG, HE & IMROHOROG[caron]LU, SELAHATTIN & SARGENT, THOMAS J., 1997. "Two Computations To Fund Social Security," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 1(01), pages 7-44, January.
  10. Alan J. Auerbach & Laurence J. Kotlikoff, 1992. "Tax Aspects of Policy toward Aging Populations," NBER Chapters, National Bureau of Economic Research, Inc, in: Canada-U.S. Tax Comparisons, pages 255-274 National Bureau of Economic Research, Inc.
  11. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(6), pages 1447-58, December.
  12. Auerbach, Alan J & Kotlikoff, Laurence J, 1992. " The Impact of the Demographic Transition on Capital Formation," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 94(2), pages 281-95.
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