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- Title
IS THE SOCIAL SECURITY CRISIS REALLY AS BAD AS WE THINK?
- Authors
Bagchi, Shantanu
- Abstract
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 households and incomplete markets, I show that with these adjustments accounted for, a significantly smaller decline in benefits is needed to balance the Social Security budget. Households respond by delaying retirement and Social Security benefit collection, by 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.
- Subjects
SOCIAL security; GENERAL equilibrium theory (Economics); FINANCIAL crises; DELAYED retirement; HOUSEHOLDS -- Environmental aspects
- Publication
Macroeconomic Dynamics, 2016, Vol 20, Issue 3, p737
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100514000571