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An Aggregate Model for Policy Analysis with Demographic Change

Author

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  • Ellen R. McGrattan
  • Edward C. Prescott
Abstract
Many countries are facing challenging fiscal financing issues as their populations age and the number of workers per retiree falls. Policymakers need transparent and robust analyses of alternative policies to deal with demographic changes. In this paper, we propose a simple framework that can easily be matched to aggregate data from the national accounts. We demonstrate the usefulness of our framework by comparing quantitative results for our aggregate model with those of a related model that includes within-age-cohort heterogeneity through productivity differences. When we assess proposals to switch from the current tax and transfer system in the United States to a mandatory saving-for-retirement system with no payroll taxation, we find that the aggregate predictions for the two models are close.

Suggested Citation

  • Ellen R. McGrattan & Edward C. Prescott, 2016. "An Aggregate Model for Policy Analysis with Demographic Change," Staff Report 534, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:534
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    References listed on IDEAS

    as
    1. Ellen R. McGrattan & Edward C. Prescott, 2017. "On financing retirement with an aging population," Quantitative Economics, Econometric Society, vol. 8(1), pages 75-115, March.
    2. Robert J. Barro & Charles J. Redlick, 2011. "Macroeconomic Effects From Government Purchases and Taxes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 51-102.
    3. Congressional Budgete Office, 2012. "Effective Marginal Tax Rates for Low- and Moderate-Income Workers," Reports 43709, Congressional Budget Office.
    4. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
    5. Congressional Budgete Office, 2012. "Effective Marginal Tax Rates for Low- and Moderate-Income Workers," Reports 43709, Congressional Budget Office.
    6. Congressional Budgete Office, 2012. "Effective Marginal Tax Rates for Low- and Moderate-Income Workers," Reports 43709, Congressional Budget Office.
    7. Congressional Budgete Office, 2012. "Effective Marginal Tax Rates for Low- and Moderate-Income Workers," Reports 43709, Congressional Budget Office.
    8. Congressional Budgete Office, 2012. "Effective Marginal Tax Rates for Low- and Moderate-Income Workers," Reports 43709, Congressional Budget Office.
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    Cited by:

    1. Cooley, Thomas F. & Henriksen, Espen & Nusbaum, Charlie, 2024. "Demographic obstacles to European growth," European Economic Review, Elsevier, vol. 169(C).
    2. Aurelien Eyquem & Masahige Hamano, 2022. "Aging, Fertility and Macroeconomic Dynamics," Working Papers 2121, Waseda University, Faculty of Political Science and Economics.
    3. Patrik Rovný & Serhiy Moroz & Jozef Palkovič & Elena Horská, 2021. "Impact of Demographic Structure on Economic Development of Ukrainian Coastal Regions," Sustainability, MDPI, vol. 13(4), pages 1-19, February.

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    More about this item

    Keywords

    Taxation; Retirement; Social Security; Medicare;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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