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Will Social Security and Medicare Remain Viable as the U.S. Population is Aging? An Update

  • Henning Bohn

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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2003/wp-cesifo-2003-10/cesifo1_wp1062.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1062.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1062
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  1. 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.
  2. Mariacristina De Nardi & Selahattin Imrohoglu & Thomas J. Sargent, 1998. "Projected U.S. demographics and social security," Working Paper Series WP-98-14, Federal Reserve Bank of Chicago.
  3. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-88, September.
  4. Hansson, Asa & Stuart, Charles, 2003. "Peaking of fiscal sizes of government," European Journal of Political Economy, Elsevier, vol. 19(4), pages 669-684, November.
  5. Hansson, Ingemar & Stuart, Charles, 1989. "Social Security as Trade among Living Generations," American Economic Review, American Economic Association, vol. 79(5), pages 1182-95, December.
  6. Kotlikoff, Laurence J & Persson, Torsten & Svensson, Lars E O, 1988. "Social Contracts as Assets: A Possible Solution to the Time-Consistency Problem," American Economic Review, American Economic Association, vol. 78(4), pages 662-77, September.
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