Optimal Response to a Demographic Shock
AbstractWe examine the optimal policy response to an exogenously given demographic shock. Such a shock affects negatively the financing of retirement pensions, and we use optimal fiscal policy in order to determine the optimal strategy of the social security administration. Our approach provides specific policy responses in an environment that guarantees the financial sustainability of existing retirement pensions. At the same time, pensions will be financed in a way that by construction generates no welfare losses for any of the cohorts in our economy. In contrast to existing literature we endogenously determine optimal policies rather than exploring implications of exogenously given policies. Our results show that the optimal strategy is based in the following ingredients: elimination of compulsory retirement, a change in the structure of labor income taxation and a temporary increase in the level of government debt.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 157.
Date of creation: Dec 2004
Date of revision:
Other versions of this item:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andres Erosa & Martin Gervais, 2000.
"Optimal taxation in life-cycle economies,"
00-02, Federal Reserve Bank of Richmond.
- Mariacristina De Nardi & Selahattin Imrohoglu & Thomas J. Sargent, 1998.
"Projected U.S. demographics and social security,"
Working Paper Series
WP-98-14, Federal Reserve Bank of Chicago.
- V. V. Chari & Patrick J. Kehoe, 1998.
"Optimal fiscal and monetary policy,"
251, Federal Reserve Bank of Minneapolis.
- Karsten Jeske, 2003. "Pension systems and aggregate shocks," Economic Review, Federal Reserve Bank of Atlanta, issue Q1, pages 15-31.
- Juan Carlos Conesa & carlos Carriga, 2004.
"Optimal Design of Social Security Reforms,"
UFAE and IAE Working Papers
642.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Boldrin, Michele & Montes, Ana, 2002.
"The Intergenerational State: Education and Pensions,"
CEPR Discussion Papers
3275, C.E.P.R. Discussion Papers.
- Michele Boldrin & Ana Montes, 2005. "The Intergenerational State Education and Pensions," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 651-664.
- Michele Boldrin & Ana Montes, 2004. "The intergenerational state: education and pensions," Staff Report 336, Federal Reserve Bank of Minneapolis.
- 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., vol. 8(1), pages 71-80, Jan.-Marc.
- Hansen, G.D., 1991. "The Cyclical and Secular Behavior of the Labor Input : Comparing Efficiency Units and Hours Worked," Papers 36, California Los Angeles - Applied Econometrics.
- Douglas Gollin, 2002.
"Getting Income Shares Right,"
Journal of Political Economy,
University of Chicago Press, vol. 110(2), pages 458-474, April.
- Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
- Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
- Grossman, G.M. & Helpman, E., 1996.
"Intergenerational Redistribution with Short-Lived Governments,"
178, Princeton, Woodrow Wilson School - Public and International Affairs.
- Grossman, Gene M & Helpman, Elhanan, 1998. "Intergenerational Redistribution with Short-Lived Governments," Economic Journal, Royal Economic Society, vol. 108(450), pages 1299-1329, September.
- Gene M. Grossman & Elhanan Helpman, 1996. "Intergenerational Redistribution with Short-Lived Governments," NBER Working Papers 5447, National Bureau of Economic Research, Inc.
- Grossman,G.M. & Helpman,E., 1996. "Intergenerational Redistribution with Short-Lived Governements," Papers 2-96, Tel Aviv.
- Grossman, Gene & Helpman, Elhanan, 1996. "Intergenerational Redistribution with Short-lived Governments," CEPR Discussion Papers 1396, C.E.P.R. Discussion Papers.
- Carlos Garriga-Calvet, 2000.
"Optimal Fiscal Policy in Overlapping Generations Models,"
Econometric Society World Congress 2000 Contributed Papers
1772, Econometric Society.
- Carlos Garriga, 2001. "Optimal Fiscal Policy in Overlapping Generations Models," Working Papers in Economics 66, Universitat de Barcelona. Espai de Recerca en Economia.
- Martin Feldstein & Jeffrey B. Liebman, 2001.
NBER Working Papers
8451, National Bureau of Economic Research, Inc.
- Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruno Guallar).
If references are entirely missing, you can add them using this form.