Will Social Security and Medicare Remain Viable as the U.S. Population is Aging? An Update
Yes, subject to concerns about Medicare inefficiencies and potentially self-confirming skepticism. The U.S. social security system-broadly defined to include Medicare-faces significant financial problems as the result of an aging population. But demographic change is also likely to raise savings, increase wages, and reduce interest rates, and up to a point, a growing GDP-share of medical spending is an efficient response to an aging population. Thus viability is more a political economy than an economic feasibility issue. To examine the political viability of social security, I focus on intertemporal cost-benefit tradeoffs in a median voter setting. For a variety of assumptions and policy alternatives, I find that social security should retain majority support.
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in: Tax Policy and the Economy, Volume 5, pages 55-110
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Working Paper Series
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