On financing retirement with an aging population

Ellen R. McGrattan, Edward Prescott

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

A problem that faces many countries including the United States is how to finance retirement consumption as the population ages. Proposals for switching to a saving-for-retirement system that does not rely on high payroll taxes have been challenged on the grounds that welfare would fall for some groups such as retirees or the working poor. We show how to devise a transition path from the current U.S. system to a saving-for-retirement system that increases the welfare of all current and future generations, with estimates of future gains higher than those found in typically used macroeconomic models. The gains are large because there is more productive capital than commonly assumed. Our quantitative results depend importantly on accounting for differences between actual government tax revenues and what revenues would be if all income were taxed at the income-weighted average marginal tax rates used in our analysis.

Original languageEnglish (US)
Pages (from-to)75-115
Number of pages41
JournalQuantitative Economics
Volume8
Issue number1
DOIs
StatePublished - Mar 1 2017

Fingerprint

Retirement
Financing
Aging population
Income
Working poor
Tax revenues
Macroeconomic models
Government
Finance
Payroll tax
Marginal tax rate
Revenue

Keywords

  • Medicare
  • Retirement
  • Social Security
  • taxation

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

On financing retirement with an aging population. / McGrattan, Ellen R.; Prescott, Edward.

In: Quantitative Economics, Vol. 8, No. 1, 01.03.2017, p. 75-115.

Research output: Contribution to journalArticle

McGrattan, Ellen R. ; Prescott, Edward. / On financing retirement with an aging population. In: Quantitative Economics. 2017 ; Vol. 8, No. 1. pp. 75-115.
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