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Government debt and social security in a life-cycle economy

Listed author(s):
  • Gertler, Mark

This paper develops a tractable overlapping generations model that is useful for analyzing both the short and long run impact of fiscal policy and social security. It modifies the Blanchard (1985)/Weil (1987) framework to allow for life/cycle behavior. This is accomplished by introducing random transition from work to retirement, and then from retirement to death. The transition probabilities may be picked to allow for realistic average lengths of life, work and retirement. The resulting framework is not appreciably more difficult to analyze than the standard Cass/Koopmans one sector growth model: Besides the capital stock, there is only one additional state variable: the distribution of wealth between workers and retirees. Under reasonable parameter values, government debt and social security have significant effects on capital intensity.

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Article provided by Elsevier in its journal Carnegie-Rochester Conference Series on Public Policy.

Volume (Year): 50 (1999)
Issue (Month): 1 (June)
Pages: 61-110

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Handle: RePEc:eee:crcspp:v:50:y:1999:i::p:61-110
Contact details of provider: Web page: http://www.elsevier.com/locate/jme

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  2. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
  3. Rao Aiyagari, S. & Gertler, Mark, 1985. "The backing of government bonds and monetarism," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 19-44, July.
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  6. Romer, D., 1988. "What Are The Costs Of Excessive Deficits?," Papers 14, Princeton, Woodrow Wilson School - Discussion Paper.
  7. Philippe Weil, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 29-42.
  8. Gali, Jordi, 1990. "Finite horizons, life-cycle savings, and time-series evidence on consumption," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 433-452, December.
  9. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
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  14. Xavier Sala-I-Martin, 1997. "Transfers, Social Safety Nets, and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 81-102, March.
  15. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
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  17. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316 National Bureau of Economic Research, Inc.
  18. anonymous, 1995. "Does the bouncing ball lead to economic growth?," Regional Update, Federal Reserve Bank of Atlanta, issue Jul, pages 1-2,4-6.
  19. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
  20. Mariacristina De Nardi & Selahattin Imrohoroglu & Thomas J. Sargent, 1998. "Projected U.S. demographics and social security," Working Paper Series WP-98-14, Federal Reserve Bank of Chicago.
  21. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," NBER Working Papers 5571, National Bureau of Economic Research, Inc.
  22. Richard H. Clarida, 1991. "Aggregate Stochastic Implications of the Life Cycle Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 851-867.
  23. Hayashi, Fumio, 1982. "The Permanent Income Hypothesis: Estimation and Testing by Instrumental Variables," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 895-916, October.
  24. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
  25. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
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