Dissertation

Table 2.11: Calibrated baseline equilibria under the different efficiency profiles.

2001 CPS Hansen (1993) Discount rate (ρ) 0.016 0.017
IEIS (σ) 3.2 3.2
Share of consumption in period utility (η) 0.332 0.339 Optimal (actual) retirement age 64.4 64.16 Capital-output ratio 2.495 2.504 Consumption-income ratio 0.751 0.75
Rate of return 0.0659 0.0654 Accidental bequest 0.01 0.0092


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Table 2.12: The impact of population aging on the projected retirement benefits under the efficiency profile from Hansen (1993).

Decline from the baseline Case 1 32.5%
Case 2 22.38%
Case 3 24.85%
Case 4 20.31%

expectancy predicted by the model increases to 78.7, which is identical to the value in the

initial baseline calibration. Also, the benefit-preserving tax rate with household behavior and factor prices fixed at the baseline level is 15.7%.¹⁰

The percentage decline in the projected retirement benefits under Cases 1, 2, 3 and 4

with the efficiency profile from Hansen (1993) are reported in Table 2.12. The table shows a

pattern very similar to the earlier experiments. The smallest decline in the projected benefits

occurs under Case 4, and the magnitude of the decline is roughly 20%, compared to the

commonly reported estimate of 33%. Moreover, the relative importance of the household

retirement and the factor price adjustment mechanisms are fairly similar: the declines in

benefits under Cases 2 and 3 are 22.38 and 24.85% respectively.

The effect of population aging on household behavior and factor prices under the ef-

ficiency profile from Hansen (1993) is reported in Table 2.13. It is clear from the table

that the household-level responses and the aggregate factor price adjustments to popula- ¹⁰As in the other experiments, I set the population growth rate under the future demographics to n =

0.47%.

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