Projected U.S. Demographics and Social Security

Nardi, Mariacristina De; İmrohoroğlu, Selahattın; Sargent, Thomas J.

doi:10.1006/redy.1999.0067

Cited by 219 publications

(164 citation statements)

References 12 publications

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“…For example, De Nardi et al (1999) demonstrate that the SSA's projections about the future tax rates required to keep Social Security solvent in the U.S. may be overly optimistic, as they overlook the distortions imposed by those higher tax rates on household behavior. They show that higher taxes are likely to discourage labor supply and saving, which is likely to have a quantitatively important effect on the future income rate of the program.…”

Section: Introductionmentioning

confidence: 99%

Is the Social Security Crisis Really as Bad as We Think?

Bagchi

2015

Macroecon. Dynam.

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Because they ignore the household-level and macroeconomic adjustments associated with longevity improvements, the actuarial projections of the Social Security Administration overestimate the Social Security crisis. Using a general-equilibrium model with heterogeneous agents and incomplete markets, I show that accounting for these adjustments, a significantly smaller decline in benefits is needed to balance the Social Security budget. Households respond to the longevity improvements by delaying retirement and Social Security benefit collection, working more hours, and by also saving more. In general equilibrium, these effects lead to a natural expansion of Social Security's tax base and generate significant delayed retirement credits, which the actuarial estimates completely overlook.JEL Classifications: E21, H55, J22

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Section: Introductionmentioning

confidence: 99%

Is the Social Security Crisis Really as Bad as We Think?

Bagchi

2015

Macroecon. Dynam.

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“…With population ageing identically under both policies. 7 In panel b of Figure 1 (with growth in the survival probabilities), the funding ratio is temporarily higher under the contribution policy. Figure 2 below shows the policy parameters in an economy with population ageing and explains why this is the case.…”

Section: Simulation Without Shocksmentioning

confidence: 94%

“…Figure 2 below shows the policy parameters in an economy with population ageing and explains why this is the case. When a 7 From the start onwards there is full indexation to productivity and price changes. As soon as 1+ u is reached, the contribution rate is reduced (both under the indexation and the contribution policy).…”

Section: Simulation Without Shocksmentioning

confidence: 99%

Inter- and Intra-generational Consequences of Pension Buffer Policy under Demographic, Financial, and Economic Shocks

Bucciol

Beetsma

2010

CESifo Economic Studies

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We study numerically the inter-and intra-generational welfare consequences of alternative pension fund policies in response to unexpected demographic, financial and macro-economic shocks. Our analysis is based on an applied many-generation OLG model describing a smallopen economy with heterogeneous agents featuring a two-pillar pension system (with PAYG and funded tiers). We explore two policies to avoid underfunding of the pension funds. One is to always first raise the pension contribution rate ("contribution policy"), the other is to always first reduce indexation to productivity and price inflation ("indexation policy"). These policies have different consequences for different generations. Of the existing generations, on average the youngest prefer the indexation policy, while the older generations prefer the contribution policy. When expressed in terms of a constant difference in rest-of-life consumption the consequences of switching from one to the other policy are generally non-negligible. They also differ rather widely for the various cohort/income groups. Our stochastic simulations show that pension buffers are highly volatile when the shocks are drawn from realistically modelled multivariate shock processes. Underfunding occurs relatively frequently. Most of the volatility arises from uncertainty about the yield curve (the rate at which pension liabilities are discounted).JEL Code: H55, I38, C61.

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“…We assume a 14 Since Güvenen (2005) estimates an annual process, we compute the values of and for a …ve year process which are consistent with the estimates of Güvenen (2005). The parameter values for our …ve year process are consumption tax rate of 5:5% and a capital income tax rate of 35%.…”

Section: Social Security and Taxationmentioning

confidence: 99%

Altruism, incomplete markets, and tax reform

Fuster

İmrohoroğlu

2008

Journal of Monetary Economics

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We compute the welfare e¤ects of di¤erent revenue-neutral tax reforms that eliminate capital income taxation in a general equilibrium model calibrated to the U.S. economy. We …nd that the reform with the largest welfare gain is the one that eliminates all income taxation and increases the consumption tax to 35%. In our calibrated dynastic economy, 75% of the population alive at the time of the reform bene…t from it. Altruism plays an important role in this result. Individuals use intervivos transfers and bequests to redistribute the long-run bene…ts in the form of higher after-tax wages and interest rates that will bene…t future generations toward the current generations. Indeed, in a pure life-cycle economy calibrated to the same U.S. observations, we …nd that the same reform would bene…t only 9% of the population. The increase in the consumption tax at the initial period of the transition hurts all individuals except for the very young workers. Since generations are not linked by private transfers, the e¢ -ciency gains of this reform are only enjoyed by generations born in the very far future. A popular tax reform in the pure life-cycle model is one that bene…ts current generations regardless of the impact on future generations. For instance, the elimination of capital income taxation …nanced with an increase in the wage tax bene…ts 63% of the population living at the time of the reform but decreases welfare in the long-run. Abstract

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Projected U.S. Demographics and Social Security

Cited by 219 publications

References 12 publications

Is the Social Security Crisis Really as Bad as We Think?

Is the Social Security Crisis Really as Bad as We Think?

Inter- and Intra-generational Consequences of Pension Buffer Policy under Demographic, Financial, and Economic Shocks

Altruism, incomplete markets, and tax reform

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