Population age structure and the size of social security

Area of Science:

• Economics
• Public Finance
• Social Security Analysis

Background:

• Traditional models often focus on intertemporal factors in social security.
• Contemporaneous (same-period) economic conditions are crucial for understanding social security dynamics.

Purpose of the Study:

• To analyze social security using a general overlapping generations model.
• To determine the impact of contemporaneous prices and income on social security benefits.
• To establish a demand-supply framework for social security benefits and payroll tax rates.

Main Methods:

• Utilizing a general overlapping generations model.
• Focusing on contemporaneous price and income effects.
• Applying a demand-supply framework with individual utility maximization.
• Analyzing three explicit demand functions representing intergenerational contracts.

Main Results:

• The old-age dependency ratio functions as a shadow price for social security benefits.
• Equilibrium price and quantity of benefits, along with payroll tax rates, are determined by this shadow price.
• The model was tested using U.S. time series data for the Old-Age and Survivors Insurance (OASI) program.

Conclusions:

• The old-age dependency ratio is a critical determinant in the economics of social security.
• The developed model provides a new framework for analyzing social security policy and its outcomes.
• Empirical testing with U.S. OASI data supports the model's applicability.