IDEAS home Printed from https://ideas.repec.org/p/fip/fedmsr/534.html
   My bibliography  Save this paper

An Aggregate Model for Policy Analysis with Demographic Change

Author

Listed:
  • Ellen R. McGrattan
  • Edward C. Prescott

Abstract

Many countries are facing challenging fiscal financing issues as their populations age and the number of workers per retiree falls. Policymakers need transparent and robust analyses of alternative policies to deal with demographic changes. In this paper, we propose a simple framework that can easily be matched to aggregate data from the national accounts. We demonstrate the usefulness of our framework by comparing quantitative results for our aggregate model with those of a related model that includes within-age-cohort heterogeneity through productivity differences. When we assess proposals to switch from the current tax and transfer system in the United States to a mandatory saving-for-retirement system with no payroll taxation, we find that the aggregate predictions for the two models are close.

Suggested Citation

  • Ellen R. McGrattan & Edward C. Prescott, 2016. "An Aggregate Model for Policy Analysis with Demographic Change," Staff Report 534, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:534
    as

    Download full text from publisher

    File URL: https://www.minneapolisfed.org/research/sr/sr534.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ellen R. McGrattan & Edward C. Prescott, 2017. "On financing retirement with an aging population," Quantitative Economics, Econometric Society, vol. 8(1), pages 75-115, March.
    2. Robert J. Barro & Charles J. Redlick, 2011. "Macroeconomic Effects From Government Purchases and Taxes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 51-102.
    3. Congressional Budgete Office, 2012. "Effective Marginal Tax Rates for Low- and Moderate-Income Workers," Reports 43709, Congressional Budget Office.
    4. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
    5. Congressional Budgete Office, 2012. "Effective Marginal Tax Rates for Low- and Moderate-Income Workers," Reports 43709, Congressional Budget Office.
    6. Congressional Budgete Office, 2012. "Effective Marginal Tax Rates for Low- and Moderate-Income Workers," Reports 43709, Congressional Budget Office.
    7. Congressional Budgete Office, 2012. "Effective Marginal Tax Rates for Low- and Moderate-Income Workers," Reports 43709, Congressional Budget Office.
    8. Congressional Budgete Office, 2012. "Effective Marginal Tax Rates for Low- and Moderate-Income Workers," Reports 43709, Congressional Budget Office.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cooley, Thomas F. & Henriksen, Espen & Nusbaum, Charlie, 2024. "Demographic obstacles to European growth," European Economic Review, Elsevier, vol. 169(C).
    2. Aurelien Eyquem & Masahige Hamano, 2022. "Aging, Fertility and Macroeconomic Dynamics," Working Papers 2121, Waseda University, Faculty of Political Science and Economics.
    3. Patrik Rovný & Serhiy Moroz & Jozef Palkovič & Elena Horská, 2021. "Impact of Demographic Structure on Economic Development of Ukrainian Coastal Regions," Sustainability, MDPI, vol. 13(4), pages 1-19, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Herrera, Ana María & Rangaraju, Sandeep Kumar, 2019. "The quantitative effects of tax foresight: Not all states are equal," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.
    2. Lopez-Daneri, Martin, 2016. "NIT picking: The macroeconomic effects of a Negative Income Tax," Journal of Economic Dynamics and Control, Elsevier, vol. 68(C), pages 1-16.
    3. Gizem Kosar & Robert A. Moffitt, 2017. "Trends in Cumulative Marginal Tax Rates Facing Low-Income Families, 1997-2007," Tax Policy and the Economy, University of Chicago Press, vol. 31(1), pages 43-70.
    4. Brett, Craig & Weymark, John A., 2017. "Voting over selfishly optimal nonlinear income tax schedules," Games and Economic Behavior, Elsevier, vol. 101(C), pages 172-188.
    5. Patrick Kline & Christopher R. Walters, 2016. "Evaluating Public Programs with Close Substitutes: The Case of HeadStart," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1795-1848.
    6. Casey B. Mulligan, 2012. "The ARRA: Some Unpleasant Welfare Arithmetic," NBER Working Papers 18591, National Bureau of Economic Research, Inc.
    7. Robert Moffitt, 2015. "Economics of Means-Tested Transfer Programs: Introduction," NBER Working Papers 21751, National Bureau of Economic Research, Inc.
    8. Hilary Hoynes & Diane Whitmore Schanzenbach, 2015. "US Food and Nutrition Programs," NBER Chapters, in: Economics of Means-Tested Transfer Programs in the United States, Volume 1, pages 219-301, National Bureau of Economic Research, Inc.
    9. N. Nazukova, 2015. "Theoretical framework on the assessment of the tax burden on capital investment," Economy and Forecasting, Valeriy Heyets, issue 2, pages 21-33.
    10. Ellen R. McGrattan & Edward C. Prescott, 2017. "On financing retirement with an aging population," Quantitative Economics, Econometric Society, vol. 8(1), pages 75-115, March.
    11. Mario Alloza, 2021. "The impact of taxes on income mobility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(4), pages 794-854, August.
    12. Ferraro, Domenico & Ghazi, Soroush & Peretto, Pietro F., 2020. "Implications of tax policy for innovation and aggregate productivity growth," European Economic Review, Elsevier, vol. 130(C).
    13. Egor Malkov, 2021. "Welfare Effects of Labor Income Tax Changes on Married Couples: A Sufficient Statistics Approach," Papers 2108.09981, arXiv.org, revised Sep 2021.
    14. Ferraro, Domenico & Peretto, Pietro F., 2020. "Innovation-led growth in a time of debt," European Economic Review, Elsevier, vol. 121(C).
    15. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2017. "Optimal Tax Progressivity: An Analytical Framework," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1693-1754.
    16. Kang, Jihye & Kim, Soyoung, 2022. "Government spending news and surprise shocks: It’s the timing and persistence," Journal of Macroeconomics, Elsevier, vol. 73(C).
    17. Robert A. Moffitt, 2015. "Introduction to "Economics of Means-Tested Transfer Programs in the United States, Volume 1"," NBER Chapters, in: Economics of Means-Tested Transfer Programs in the United States, Volume 1, pages 1-19, National Bureau of Economic Research, Inc.
    18. Egor Malkov, 2021. "Welfare Effects of the Labor Income Tax Changes on Married Couples: A Sufficient Statistics Approach," Working Papers 590, ECINEQ, Society for the Study of Economic Inequality.
    19. Croce, M.M. & Nguyen, Thien T. & Raymond, S. & Schmid, L., 2019. "Government debt and the returns to innovation," Journal of Financial Economics, Elsevier, vol. 132(3), pages 205-225.
    20. Elira Kuka, 2020. "Quantifying the Benefits of Social Insurance: Unemployment Insurance and Health," The Review of Economics and Statistics, MIT Press, vol. 102(3), pages 490-505, July.

    More about this item

    Keywords

    Taxation; Retirement; Social Security; Medicare;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedmsr:534. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kate Hansel (email available below). General contact details of provider: https://edirc.repec.org/data/cfrbmus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.