AEA Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
Simulating the Blanchard Conjecture in a Multiperiod Life Cycle Model
AEA Papers and Proceedings
vol. 110,
May 2020
(pp. 149–51)
Abstract
In recent writings, Olivier Blanchard has suggested that when the safe rate on government debt is less that the economy's growth rate, additional deficit-financed US federal spending would come at no cost to any future generation and benefits to some. This paper studies this question in a ten-period OLG CGE model with aggregate risk, whose safe rate averages -2 percent annually and growth rate is 0. It shows that welfare losses to future generations resulting from the introduction of pay-go social security, financed with a 15 percent payroll tax, are roughly 20 percent measured as a compensating variation relative to no policy.Citation
Hasanhodzic, Jasmina. 2020. "Simulating the Blanchard Conjecture in a Multiperiod Life Cycle Model." AEA Papers and Proceedings, 110: 149–51. DOI: 10.1257/pandp.20201105Additional Materials
JEL Classification
- D58 Computable and Other Applied General Equilibrium Models
- E23 Macroeconomics: Production
- E43 Interest Rates: Determination, Term Structure, and Effects
- H55 Social Security and Public Pensions
- H63 National Debt; Debt Management; Sovereign Debt