Optimal response to a transitory demographic shock in Social Security financing
AbstractWe examine the optimal policy response to a transitory demographic shock that affects negatively the financing of retirement pensions. In contrast to existing literature, we endogenously determine optimal policies rather than exploring implications of exogenous parametric policies. Our approach identifies optimal strategies of the social security administration to guarantee the financial sustainability of existing retirement pensions in a Pareto improving way. Hence, no cohort will pay the cost of the demographic shock. We find 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.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2007-041.
Date of creation: 2007
Date of revision:
Publication status: Published in Pension Strategies in Europe and the United States, April 2008, pp. 87-116, MIT Press.
Other versions of this item:
- Juan Carlos Conesa & Carlos Garriga, 2009. "Optimal response to a transitory demographic shock in Social Security financing," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 33-48.
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