This collection of essays, coauthored with other distinguished economists, offers new perspectives on saving, intergenerational economic ties, retirement planning, and the distribution of wealth. The ...book links life-cycle microeconomic behavior to important macroeconomic outcomes, including the roughly 50 percent postwar decline in America's rate of saving and its increasing wealth inequality. The book traces these outcomes to the government's five-decade-long policy of transferring, in the form of annuities, ever larger sums from young savers to old spenders. The book presents new theoretical and empirical analyses of altruism that rule out the possibility that private intergenerational transfers have offset those by the government. While rational life-cycle behavior can explain broad economic outcomes, the book also shows that a significant minority of households fail to make coherent life-cycle saving and insurance decisions. These mistakes are compounded by reliance on conventional financial planning tools, which the book compares with Economic Security Planner (ESPlanner), a new life-cycle financial planning software program. The application of ESPlanner to U.S. data indicates that most Americans approaching retirement age are saving at much lower rates than they should be, given potential major cuts in Social Security.
This paper surveys the economic wreckage created by Wall Street's decision to manufacture and sell trillions of dollars of financial securities, which we now call toxic. And we call them toxic, not ...because they were risky, but because they were fraudulent. Rather than address the fundamental reasons the financial sector engages in malfeasance, the US government has been busy issuing its own fundamentally fraudulent securities, namely guarantees to support large segments of the financial sector were there to be major runs on the banks and other financial institutions. Fulfilling such guarantees would require printing trillions upon trillions of dollars and causing hyperinflation. The potential for such runs is very large, indeed, thanks to Uncle Sam's perilous fiscal finances. Achieving fiscal balance and financial security will require fundamental reform of America's retirement, tax, Social Security, and financial systems. These reforms, as outlined here, may strike some as radical. But what is truly radical is maintaining the policies now in place. PUB ABSTRACT
This paper uses Panel Study of Income Dynamics data on parents and their adult children to test the standard altruism model. This model predicts that, within the extended family, the distribution of ...consumption is independent of the distribution of resources. Our findings strongly reject this prediction.
This paper illustrates the technique of generational accounting, a new way to evaluate fiscal policy that overcomes the inherent ambiguities of traditional deficit accounting. The authors illustrate ...why there is no ‘correct’ measure of the deficit and how generational accounting--estimating the fiscal burdens current policy places on different generations--provides a clearer picture of the intergenerational and macroeconomic effects of fiscal policy than any measure of the deficit. Their calculations suggest that, despite recent changes, U.S. fiscal policy is unsustainable in that it will ultimately require future generations to bear a much higher burden than those currently alive.
This paper uses a new version of the Auerbach–Kotlikoff model to consider alternative ways to privatize the U.S. Social Security System. The new model incorporates intra- and intergenerational ...heterogeneity and is closely calibrated to U.S. fiscal institutions. Three privatization issues are considered: financing the transition, participation rules, and progressivity. As shown, Social Security's privatization can substantially raise long-run living standards. But these gains come at the cost of welfare losses to transition generations and take a long time to materialize. The long-run poor have much to gain from privatization even absent an explicit redistribution mechanism. Finally, privatizations that give initial workers the option of remaining in the current system have particularly low transition costs and particularly favorable macroeconomic consequences.
Journal of Economic Literature Classification Numbers: D9, E6.
This paper develops, calibrates, and simulates a dynamic 88-period OLG model to study the intergenerational transmission of U.S. wealth inequality via bequests. The model features marriage, realistic ...fertility patterns, random death, assortative mating based on skills, heterogeneous skill endowments, heterogeneous rates of return, skill inheritability, progressive income taxation, and resource annuitization via social security. All bequests arise from imperfect annuitization. Nonetheless, the model generates a realistic ratio of aggregate wealth to aggregate labor income, a realistic bequest flow relative to the stock of wealth, and a realistic wealth distribution at retirement. Skill differences, assortative mating, social security, and the time preference are the primary determinants of wealth inequality. Bequests do propagate wealth inequality, but only in the presence of social security, which disproportionately disinherits the lifetime poor. Intergenerational wealth immobility, also considered here, is primarily determined by the inheritance of skills from one’s parents and the magnification of the impact of this inheritance by marital sorting.
Generational Accounting around the World Alan J. Auerbach, Laurence J. Kotlikoff, Willi Leibfritz / Alan J. Auerbach, Laurence J. Kotlikoff, Willi Leibfritz
2007
eBook
The realities of mounting government debt, tax burdens, and an aging population raise serious concerns about the financial legacy confronting future generations. How great a fiscal burden will ...current policies leave to subsequent generations, and how might changes in those policies alter the intergenerational distribution of public welfare? Generational accounting has recently emerged as a robust new method of fiscal analysis and planning designed to assess the long-term sustainability of fiscal policy and to measure the extent of the financial load ultimately borne by present and future generations. A seminal contribution to public economics, generational accounting has already been adopted by 23 nations around the world.Combining the latest and most extensive country-by-country generational analyses with a comprehensive review of generational accounting's innovative methodology, these papers are a consummate resource for economists, political scientists, and policy makers concerned with fiscal health and responsibility.
Generational Accounting in the UK Cardarelli, Roberto; Sefton, James; Kotlikoff, Laurence J.
The Economic journal (London),
November 2000, Letnik:
110, Številka:
467
Journal Article
Recenzirano
This paper presents the first set of generational accounts for the United Kingdom. We find that under our baseline scenario, in which pensions are price indexed and health expenditure grows modestly, ...the imbalance in UK generational policy is small when compared with other leading industrial countries like the United States, Japan, and Germany. However, under an alternative policy scenario, where all social benefits are wage-indexed and health care spending is increased, there is a larger fiscal bill left for future generations to pay. In this case, achieving generational balance would require much stronger medicine.
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