SIMULATING ALTERNATIVE SOCIAL SECURITY RESPONSES TO THE DEMOGRAPHIC TRANSITION

Abstract

"This paper uses a perfect foresight life cycle simulation model to examine the dynamic economic effects of baby 'booms' and baby 'busts' as well as the interaction of such demographic changes with social security policy. Demographic change can have sizeable short and long-run effects on saving rates and factors returns." The geographic focus is on the United States. "The model predicts long-run improvement in welfare associated with a prolonged baby bust. This improvement holds even in the absence of accommodating social security policy. It reflects a long-run decline in the dependency ratio, with the reduction in dependent children per worker more than offsetting the increase in retirees per worker."

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