Is the Social Security Crisis Really as Bad as We Think?
Shantanu Bagchi ()
MPRA Paper from University Library of Munich, Germany
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.
Keywords: Social Security; longevity improvement; general equilibrium; delayed retirement; delayed retirement credit (search for similar items in EconPapers)
JEL-codes: E21 H55 J22 (search for similar items in EconPapers)
Date: 2013-08, Revised 2014-05
New Economics Papers: this item is included in nep-age, nep-dge and nep-mac
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Journal Article: IS THE SOCIAL SECURITY CRISIS REALLY AS BAD AS WE THINK? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:56294
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