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The True Cost of Social Security

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Author Info
Alexander W. Blocker
Laurence J. Kotlikoff
Stephen A. Ross

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Abstract

Implicit government obligations represent the lion's share of government liabilities in the U.S. and many other countries. Yet these liabilities are rarely measured, let alone properly adjusted for their risk. This paper shows, by example, how modern asset pricing can be used to value implicit fiscal debts taking into account their risk properties. The example is the U.S. Social Security System's net liability to working-age Americans. Marking this debt to market makes a big difference; its market value is 23 percent larger than the Social Security trustees' valuation method suggests.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14427.

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Date of creation: Oct 2008
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Handle: RePEc:nbr:nberwo:14427

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Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
H2 - Public Economics - - Taxation, Subsidies, and Revenue
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
H6 - Public Economics - - National Budget, Deficit, and Debt

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References listed on IDEAS
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.:
  1. Ross, Stephen A, 1978. "A Simple Approach to the Valuation of Risky Streams," Journal of Business, University of Chicago Press, vol. 51(3), pages 453-75, July. [Downloadable!] (restricted)
  2. Jerry Green & Laurence J. Kotlikoff, 2006. "On the General Relativity of Fiscal Language," NBER Working Papers 12344, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts - A Meaningful Alternative to Deficit Accounting," NBER Working Papers 3589, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, vol. 60(4), pages 953-66, July. [Downloadable!] (restricted)
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  5. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166. [Downloadable!] (restricted)
  6. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December. [Downloadable!] (restricted)
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Cited by:
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  1. John Geanakoplos & Stephen P. Zeldes, 2009. "Market Valuation of Accrued Social Security Benefits," Cowles Foundation Discussion Papers 1711, Cowles Foundation, Yale University. [Downloadable!]
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