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Macroeconomic Effects of Medicare

Juan Carlos Conesa (), Daniela Costa (), Parisa Kamali (), Timothy Kehoe (), Vegard Nygaard (), Gajendran Raveendranathan and Akshar Saxena ()

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 ?nd 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 ?nd lower ex-ante welfare gains from eliminating Medicare when we account for the costs of transition. Lastly, we ?nd 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: Transition path; Steady state; Medicaid; Overlapping generations; Medicare (search for similar items in EconPapers)
JEL-codes: E21 E62 H51 I13 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2017-04-27
New Economics Papers: this item is included in nep-age, nep-dge, nep-hea, nep-ias and nep-mac
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Journal Article: Macroeconomic effects of Medicare (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:548

DOI: 10.21034/sr.548

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