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Working Paper 1998-023B

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"The Effects of Aging and Myopia on the Pay-as-you-go Social Security Systems of the G7"
by Rowena A. Pecchenino, and Patricia S. Pollard

The Social Security systems of the G7 countries were established in an era when populations were young and the number or contributors far outweighed the number of beneficiaries. Now, for each beneficiary there are fewer contributors, and this downward trend is projected to accelerate. To evaluate the prospects for these economies we develop an overlapping generations model in which growth is endogenously fueled by individuals' investments in physical and human capital and by the government's investment in human capital via public education expenditures. We analyze individuals' behavior when their expectations over their length of life are rational and adaptive (myopic). We examine for each of the economies and for each of the expectation assumptions whether policies exist that can offset the effects of aging, should they be adverse. Further, we examine how policies aimed at a specific target group affect the welfare of the economy as a whole.

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Category > Monetary Policy/Macroeconomics