We develop a quantitative life-cycle model to study the impact of Social Security on the US natural interest rate, r*. Past reforms mitigated the r* decline, raising the natural rate by approximately 1 percentage point between 1970 and 2015 through higher replacement rate and retirement age. In the future, increasing the retirement age would counteract the downward pressure on r* due to demographics more than reforms entailing higher contribution or lower replacement rates, with the latter reform delivering the lowest r* value across different future productivity scenarios for the US economy.
Bonchi, J., Caracciolo, G. (2025). Declining r* in the US: The role of Social Security. JOURNAL OF PUBLIC ECONOMICS, 241, 1-20 [10.1016/j.jpubeco.2024.105277].
Declining r* in the US: The role of Social Security
Bonchi, Jacopo;
2025
Abstract
We develop a quantitative life-cycle model to study the impact of Social Security on the US natural interest rate, r*. Past reforms mitigated the r* decline, raising the natural rate by approximately 1 percentage point between 1970 and 2015 through higher replacement rate and retirement age. In the future, increasing the retirement age would counteract the downward pressure on r* due to demographics more than reforms entailing higher contribution or lower replacement rates, with the latter reform delivering the lowest r* value across different future productivity scenarios for the US economy.| File | Dimensione | Formato | |
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