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Samuelsonian Economics and the Twenty-First Century$
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Michael Szenberg, Lall Ramrattan, and Aron A. Gottesman

Print publication date: 2006

Print ISBN-13: 9780199298839

Published to Oxford Scholarship Online: January 2009

DOI: 10.1093/acprof:oso/9780199298839.001.0001

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Social Security, the Government Budget, and National Savings

Social Security, the Government Budget, and National Savings

(p.54) 3 Social Security, the Government Budget, and National Savings
Samuelsonian Economics and the Twenty-First Century

Peter Diamond

Oxford University Press

This chapter focuses on the implication of overlapping generation models on government policies. The government can choose a higher tax rate than the ‘pay as you go’ rate, to increase the baby boomer contribution to the social security fund. The impact of this approach on overlapping generations will depend on the state of the rest of the government budget and people's reaction to such policies. The chapter discusses ways to link the social security and non-social security budges. It analyzes the impact of the 1983 Social Security Reform by Congress through a model that considers a one-period rise in payroll taxes to permanently increase the trust fund. When the model reaches its asymptotic steady state marked by the end of the initial period, all the persons in the initial period will die, and as production technology is linear, capital will be larger in the end when compared to that in the initial period.

Keywords:   trust fund, baby boomers, government budget, taxes, steady state, Social Security Reform

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