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Implications of Increasing College Attainment for Aging in General Equilibrium

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  • Juan Carlos Conesa
  • Timothy J. Kehoe
  • Vegard M. Nygaard
  • Gajendran Raveendranathan

Abstract

We develop and calibrate an overlapping generations general equilibrium model of the U.S. economy with heterogeneous consumers who face idiosyncratic earnings and health risk to study the implications of exogenous trends in increasing college attainment, decreasing fertility, and increasing longevity between 2005 and 2100. While all three trends contribute to a higher old age dependency ratio, increasing college attainment has different macroeconomic implications because it increases labor productivity. Decreasing fertility and increasing longevity require the government to increase the average labor tax rate from 32.0 to 44.4 percent. Increasing college attainment lowers the required tax increase by 10.1 percentage points. The required tax increase is higher under general equilibrium than in a small open economy with a constant interest rate because the reduction in the interest rate lowers capital income tax revenues.

Suggested Citation

  • Juan Carlos Conesa & Timothy J. Kehoe & Vegard M. Nygaard & Gajendran Raveendranathan, 2019. "Implications of Increasing College Attainment for Aging in General Equilibrium," Department of Economics Working Papers 2019-05, McMaster University.
  • Handle: RePEc:mcm:deptwp:2019-05
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    Cited by:

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    2. John Bailey Jones & Yue Li, 2020. "Social Security Reform with Heterogeneous Mortality," Working Paper 20-09, Federal Reserve Bank of Richmond.
    3. Thomas F. Cooley & Espen Henriksen & Charlie Nusbaum, 2019. "Demographic Obstacles to European Growth," NBER Working Papers 26503, National Bureau of Economic Research, Inc.
    4. Elena Falcettoni & Vegard Nygaard, 2020. "A Comparison of Living Standards Across the States of America," FEDS Notes 2020-05-28-1, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    college attainment; aging; health care; taxation; general equilibrium;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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