Projected U.S. Demographics and Social Security

Mariacristina De Nardi, Selahattin Imrohoroglu, Thomas J. Sargent

Research output: Contribution to journalArticle

93 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)575-615
Number of pages41
JournalReview of Economic Dynamics
Volume2
Issue number3
DOIs
StatePublished - Jul 1 1999
Externally publishedYes

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