Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60878
Authors: 
çImrohoroæglu, Selahattin
Kitao, Sagiri
Year of Publication: 
2010
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 436
Abstract: 
We build a general equilibrium model of overlapping generations that incorporates endogenous saving, labor force participation, work hours, and Social Security benefit claims. Using this model, we study the impact of three Social Security reforms: 1) a reduction in benefits and payroll taxes; 2) an increase in the earliest retirement age, to sixty-four from sixty-two; and 3) an increase in the normal retirement age, to sixty-eight from sixty-six. We find that a 50 percent cut in the scope of the current system significantly raises asset holdings and the labor input, primarily through higher participation of older workers, and reduces the shortfall of the Social Security budget through a reduction in early claiming. Increasing the normal retirement age also raises saving and the labor supply, but the effects are smaller. Postponing the earliest retirement age has only a negligible effect. When the projected aging of the population is taken into account, the case for a reform that encourages labor force participation of the elderly appears to be much stronger.
Subjects: 
Social Security reform
labor force participation
benefit claiming
retirement age
overlapping generations
JEL: 
E62
H24
H31
Document Type: 
Working Paper

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