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Projected U.S. demographics and social security

  • Mariacristina De Nardi
  • Selahattin Imrohoglu
  • Thomas J. Sargent

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.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-98-14.

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Date of creation: 1998
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Handle: RePEc:fip:fedhwp:wp-98-14
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  1. Auerbach, Alan J & Kotlikoff, Laurence J, 1992. " The Impact of the Demographic Transition on Capital Formation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(2), pages 281-95.
  2. Hansen, G.D., 1991. "The Cyclical and Secular Behavior of the Labor Input : Comparing Efficiency Units and Hours Worked," Papers 36, California Los Angeles - Applied Econometrics.
  3. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  4. Jones, Larry E. & Manuelli, Rodolfo E., 1992. "Finite lifetimes and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 171-197, December.
  5. HUANG, HE & IMROHOROG[caron]LU, SELAHATTIN & SARGENT, THOMAS J., 1997. "Two Computations To Fund Social Security," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 7-44, January.
  6. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
  7. John B. Shoven & John Whalley, 1992. "Canada-U.S. Tax Comparisons," NBER Books, National Bureau of Economic Research, Inc, number shov92-1, December.
  8. Cooley, Thomas F. & Soares, Jorge, 1996. "Will social security survive the baby boom?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 89-121, December.
  9. Alan J. Auerbach & Laurence J. Kotlikoff, 1992. "Tax Aspects of Policy toward Aging Populations," NBER Chapters, in: Canada-U.S. Tax Comparisons, pages 255-274 National Bureau of Economic Research, Inc.
  10. Laurence J. Kotlikoff & Kent Smetters & Jan Walliser, 1999. "Privatizing Social Security in the U.S. -- Comparing the Options," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 532-574, July.
  11. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-58, December.
  12. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-77, June.
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