
Contents
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8 Reducing Social Security PRA Risk at the Individual Level: Life-Cycle Funds and No-Loss Strategies
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11.1 Introduction 11.1 Introduction
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11.2 A Simple Model 11.2 A Simple Model
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11.2.1 Households 11.2.1 Households
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11.2.2 Firms 11.2.2 Firms
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11.2.3 Aggregation 11.2.3 Aggregation
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11.2.4 Analysis 11.2.4 Analysis
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11.3 The Quantitative Model 11.3 The Quantitative Model
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11.3.1 Demographics 11.3.1 Demographics
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11.3.2 Technology 11.3.2 Technology
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11.3.3 Endowments and Preferences 11.3.3 Endowments and Preferences
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11.3.4 Government Policies 11.3.4 Government Policies
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11.3.5 Market Structure 11.3.5 Market Structure
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11.3.6 Equilibrium 11.3.6 Equilibrium
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11.3.7 Calibration 11.3.7 Calibration
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11.3.8 Solution Method 11.3.8 Solution Method
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11.4 Results 11.4 Results
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11.4.1 Dynamics of Aggregate Statistics 11.4.1 Dynamics of Aggregate Statistics
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11.4.2 Quantifying International Capital Flows 11.4.2 Quantifying International Capital Flows
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11.4.3 Distributional and Welfare Consequences of Demographic Change 11.4.3 Distributional and Welfare Consequences of Demographic Change
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Evolution of Inequality Evolution of Inequality
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Welfare Consequences of the Demographic Transition Welfare Consequences of the Demographic Transition
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11.4.4 The Role of Social Security 11.4.4 The Role of Social Security
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11.4.5 The Role of Idiosyncratic Risk 11.4.5 The Role of Idiosyncratic Risk
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11.5 Conclusions 11.5 Conclusions
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References References
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Comment - James M. Poterba Comment - James M. Poterba
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11 Demographic Change, Relative Factor Prices, International Capital Flows, and Their Differential Effects on the Welfare of Generations
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Published:June 2009
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Abstract
This chapter evaluates the welfare consequences of the demographic transition per se and not just the alternative Social Security reform scenarios, as well as in the analysis of the distributional consequences of changing factor prices due to population aging. It is reported that that the rate of return to capital can be expected to decrease by about 80–90 basis points until 2050, with a corresponding increase of wages if PAYGO Social Security systems are reformed such that contribution rates are held constant. It is also shown that increasing the mandatory retirement age by five years is shown to mitigate substantially these losses and to significantly increase the welfare gains of newborns. The welfare gains for newborns are actually larger than what is computed because in addition, these newborns are expected to live longer than the current generation.
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