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The Short-Run Behavior of the Social Security Trust Funds

Author

Listed:
  • Lawrence H. Thompson

    (Department of Health, Education and Welfare)

  • Paul N. Van de Water

    (Department of Health, Education and Welfare)

Abstract

The old-age, survivors, and disability insurance trust funds are now running a deficit of more than $5 billion per year. As recently as 1972, however, these trust funds were expected to be in surplus for some time. Simulations with an econometric model of the OASDI system suggest that this turnaround can be explained largely by economic developments unforeseen in 1972. The deterioration in the social security short-term financing picture is due in roughly equalparts to high unemployment and poor real wage growth. Inflation by itself has so far had little effect on the trust fund balances. The simulations also suggest that social security trust fund balances equal to approximately 60% of yearly outlays should be kept on hand if the system is to be able to withstand a recession slightly more severe than the present one without having to raise taxes until unemployment falls below 6%.

Suggested Citation

  • Lawrence H. Thompson & Paul N. Van de Water, 1977. "The Short-Run Behavior of the Social Security Trust Funds," Public Finance Review, , vol. 5(3), pages 351-372, July.
    • Handle: RePEc:sae:pubfin:v:5:y:1977:i:3:p:351-372
    DOI: 10.1177/109114217700500304
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