The Future of Social SecurityMartin Gonzalez-Eiras () and
Dirk Niepelt ()
No 07.02, Working Papers from Swiss National Bank, Study Center Gerzensee Abstract: We analyze the effect of the projected demographic transition on the political support for social security, and equilibrium outcomes. Embedding a probabilistic-voting setup of electoral competition in the Diamond (1965) OLG model, we find that intergenerational transfers arise in the absence of altruism, commitment, or trigger strategies. Closed-form solutions predict population ageing to lead to higher social security tax rates, a rising share of pensions in GDP, but eventually lower social security benefits per retiree. The response of equilibrium tax rates to demographic shocks reduces old-age consumption risk. Calibrated to match features of the U.S. economy, the model suggests that, in response to the projected demographic transition, social security tax rates will gradually increase to 16 percent; other policies that distort labor supply will become less important; and in contrast with frequently voiced fears, labor supply therefore will rise. New Economics Papers: this item is included in nep-dge, nep-for, nep-pbe and nep-pub Downloads: (external link) Related works: Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Working Papers from Swiss National Bank, Study Center Gerzensee |
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