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Fiscal Policy Effects in a Heterogeneous-Agent OLG Economy with an Aging Population

Research output: Working paper

Published
Publication date2015
Place of PublicationLancaster
PublisherLancaster University, Department of Economics
Number of pages47
<mark>Original language</mark>English

Publication series

NameEconomics Working Paper Series

Abstract

This paper incorporates the aging population projected by the U.S. Social Security Administration to a heterogeneous-agent OLG model with idiosyncratic wage shocks and analyzes its effects on individual households, the government budget, and the overall economy. The fiscal gap caused by the demographic change is 2.94% of GDP under the intermediate projection. The effect of the aging population is large by itself and depends significantly on how the government finances the cost of the demographic change. There is a strong trade-off between efficiency and equity, and this paper quantitatively assesses the pros and cons of stylized fiscal reform plans.