Analyzing an Aging Population–A Dynamic General Equilibrium Approach: Technical Paper 2004-03

February 1, 2004
Working Paper
A description of the model used to analyze the macroeconomic effects of Social Security policy proposals.


Shinichi Nishiyama

This paper shows the macroeconomic and welfare implications of an aging population in the United States, using an overlapping-generations model with heterogeneous households. The model uses three population projections in Social Security Administration (2003), and generates economies as equilibrium transition paths from 1961 to 2200. The paper demonstrates how several different population projections and government financing assumptions—to make the Social Security system sustainable—affect households’ decisions and welfare. One of the policy experiments shows that an immediate increase in the payroll tax may not improve the welfare of future generations as much as it reduces the welfare of current generations.