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Projected U.S. Demographics and Social Security

Author

Listed:
  • Mariacristina De Nardi

    (University of Chicago and Federal Reserve Bank of Chicago)

  • Selahattin Imrohoroglu

    (University of Southern California)

  • Thomas J. Sargent

    (Stanford University and Hoover Institution)

Abstract

Without policy reforms, the aging of the U.S. population is likely to increase the burden of the currently unfunded social security and medicare systems. In this paper we build an applied general equilibrium model and incorporate the population projections made by the Social Security Administration (SSA) to evaluate the macroeconomic and welfare implications of alternative fiscal responses to the retirement of the baby-boomers. Our calculation suggest that it will be costly to maintain the benefits at the levels now promised because the increases in distortionary taxes required to finance those benefits will reduce private saving and labor supply. We also find that the "accounting calculations" made by SSA underestimate the required fiscal adjustments. Finally, our results confirm that policies with similar long-run characteristics have very different transitional implications about the distribution of welfare across generations. (Copyright: Elsevier)

Suggested Citation

  • Mariacristina De Nardi & Selahattin Imrohoroglu & Thomas J. Sargent, 1999. "Projected U.S. Demographics and Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 575-615, July.
    • Handle: RePEc:red:issued:v:2:y:1999:i:3:p:575-675
    DOI: 10.1006/redy.1999.0067
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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