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Macroeconomic Effects of Medicare

Juan Carlos Conesa (), Daniela Costa (), Parisa Kamali (), Timothy Kehoe (), Vegard Nygard, Gajendran Raveendranathan and Akshar Saxena ()
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Vegard Nygard: Federal Reserve Bank of Minneapolis

Authors registered in the RePEc Author Service: Vegard Mokleiv Nygaard ()

No 548, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: This paper develops an overlapping generations model to study the macroeconomic effects of an unexpected elimination of Medicare. We find that a large share of the elderly respond by substituting Medicaid for Medicare. Consequently, the government saves only 46 cents for every dollar cut in Medicare spending. We argue that a comparison of steady states is insufficient to evaluate the welfare effects of the reform. In particular, we find lower ex-ante welfare gains from eliminating Medicare when we account for the costs of transition. Lastly, we find that a majority of the current population benefits from the reform but that aggregate welfare, measured as the dollar value of the sum of wealth equivalent variations, is higher with Medicare.

Keywords: Medicare; Medicaid; Overlapping generations; Steady state; Transition path (search for similar items in EconPapers)
JEL-codes: E21 E62 H51 I13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge, nep-hea, nep-ias and nep-mac
Date: 2017-04-27
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Journal Article: Macroeconomic effects of Medicare (2018) Downloads
Working Paper: Macroeconomic Effects of Medicare (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:548

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DOI: 10.21034/sr.548

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