TY - JOUR
T1 - Projected U.S. Demographics and Social Security
AU - De Nardi, Mariacristina
AU - Imrohoroglu, Selahattin
AU - Sargent, Thomas J.
N1 - Funding Information:
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 calculations 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 the SSA underestimate the required fiscal adjustments. Finally, our results confirm that policies with similar long-run characteristics have very different transitional implications for the distri~ bution of welfare across generations. Journal of Economic Literature Classification Numbers: D52, D58, E21, E62. © 1999A cademicP ress * For comments, we thank the audiences for presentations of drafts of this paper at the Federal Reserve Macro System Committee Meeting, the University of Minnesota, the London School of Economics, and the Universitat Pompeu Fabra. We also thank Andrew Abel, Marco Bassetto, Randall P. Mariger, Frangois Velde, and an anonymous referee associated with this journal. Neither the Federal Reserve Bank of Chicago nor the Federal Reserve System is responsible for the views expressed in this paper. Thomas J. Sargent acknowledges support from the National Science Foundation.
PY - 1999/7
Y1 - 1999/7
N2 - 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 calculations 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 the SSA underestimate the required fiscal adjustments. Finally, our results confirm that policies with similar long-run characteristics have very different transitional implications for the distribution of welfare across generations. Journal of Economic Literature Classification Numbers: D52, D58, E21, E62.
AB - 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 calculations 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 the SSA underestimate the required fiscal adjustments. Finally, our results confirm that policies with similar long-run characteristics have very different transitional implications for the distribution of welfare across generations. Journal of Economic Literature Classification Numbers: D52, D58, E21, E62.
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U2 - 10.1006/redy.1999.0067
DO - 10.1006/redy.1999.0067
M3 - Article
AN - SCOPUS:0004864534
SN - 1094-2025
VL - 2
SP - 575
EP - 615
JO - Review of Economic Dynamics
JF - Review of Economic Dynamics
IS - 3
ER -