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Social Security Reform in an Economy with Population Aging

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  • Shinichi Nishiyama

Abstract

This paper analyzes the macroeconomic and welfare effects of population aging and Social Security reform. First, a stochastic overlapping-generations model with heterogeneous agents is carefully extended to an aging society. The model uses the intermediate population projection of the Trustee Report, and it generates baseline economies as equilibrium transition paths starting year 1961. Under this reasonable aging assumption, per capita labor supply will decrease in the long run, and per capita national wealth will increase compared to the balanced growth path, although the private saving rate will be declining. Then, the paper analyzes three stylized but realistic Social Security reform plans that cut benefits, increase the payroll tax cap, and introduce personal savings accounts with benefit offsets

Suggested Citation

  • Shinichi Nishiyama, 2004. "Social Security Reform in an Economy with Population Aging," Econometric Society 2004 North American Winter Meetings 582, Econometric Society.
  • Handle: RePEc:ecm:nawm04:582
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    File URL: http://repec.org/esNAWM04/up.15324.1049238675.pdf
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    References listed on IDEAS

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    1. Hans Fehr & Sabine Jokisch & Laurence Kotlikoff, 2003. "The Developed World's Demographic Transition - The Roles of Capital Flows, Immigration, and Policy," NBER Working Papers 10096, National Bureau of Economic Research, Inc.
    2. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 315-407.
    3. Ríos-Rull José-Víctor, 2001. "Population Changes and Capital Accumulation: The Aging of the Baby Boom," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-48, May.
    4. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
    5. Shinichi Nishiyama & Kent Smetters, 2003. "Consumption Taxes and Economic Efficiency in a Stochastic OLG Economy," NBER Working Papers 9492, National Bureau of Economic Research, Inc.
    6. 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.
    7. Douglas W. Elmendorf & Louise M. Sheiner, 2000. "Should America Save for Its Old Age? Fiscal Policy, Population Aging, and National Saving," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 57-74, Summer.
    8. John Laitner, 2003. "Labor Supply Responses to Social Security," Working Papers wp050, University of Michigan, Michigan Retirement Research Center.
    9. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
    10. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
    11. David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990. "An Aging Society: Opportunity or Challenge?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
    12. Mark Huggett & Gustavo Ventura, 1999. "On the Distributional Effects of Social Security Reform," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 498-531, July.
    13. repec:fth:harver:1490 is not listed on IDEAS
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    More about this item

    Keywords

    Social Security; Overlapping Generations; Dynamic General Equilibrium;

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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