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Who's afraid of population aging?

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  • Alexander Ueberfeldt

    (Bank of Canada)

Abstract

Most industrialized countries confront at the same time an increasing life-span, low current birth rates and the retirement of the relatively large post World War II generation. This paper considers different policies as potential solutions to the implied funding problem of any Pay-As-You-Go retirement system. The policies are: increasing social security taxes, decreasing retirement-benefits, increasing eligibility age for retirement benefits, and a privatization of the retirement system using debt to finance the transition. It asks the question: What are the welfare and macroeconomic consequences of different retirement policies in the presence of population aging? The question is answered in a general equilibrium lifecycle model with endogenous savings, labor supply and human capital accumulation, calibrated to match important characteristics of the U.S. economy. The paper finds that privatization is the only Pareto improving policy in the considered set. Furthermore, the presence of human capital accumulation has important policy implications, making the transition to a privatized system longer and more difficult to finance.

Suggested Citation

  • Alexander Ueberfeldt, 2009. "Who's afraid of population aging?," 2009 Meeting Papers 778, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:778
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    References listed on IDEAS

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    Cited by:

    1. Ellen R. McGrattan & Edward C. Prescott, 2017. "On financing retirement with an aging population," Quantitative Economics, Econometric Society, vol. 8(1), pages 75-115, March.

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