Jagadeesh Gokhale

Generational accounting: a new approach for understanding the effects of fiscal policy on saving

An application of generational accounting to fiscal policies that feature intergenerational redistribution. The authors consider different policies, only some of which show up as a change in the deficit, and explore their impact on the net national saving rate.

Estimating a Firm's Age-Productivity Profile Using the Present Value of Workers' Earnings

In hiring new workers, risk-neutral employers equate the present expected value of each workers compensation to the present expected value of higher productivity, Data detailing how present expected compensation varies with the age of hire embed, therefore, information about how productivity varies with age. This paper infers age-productivity profiles using data on the present expected value of earnings of new hires of a Fortune 1000 firm. For each of the five occupation/sex groups considered, productivity falls with age, with productivity exceeding earnings for young workers and vice versa for older workers.

Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis

Since 1980, the U.S. net national saving rate has averaged less than half the rate observed in the 1950s and 60s. This paper develops a unique cohort data set to study the decline in U.S. national saving. It decomposes postwar changes in U.S. saving into those due to changes in cohort-specific consumption propensities, those due to changes in the intergenerational distribution of resources, those due to changes in government spending on goods and services, and those due to changes in demographics. Our findings are striking. The decline in U.S. saving can be traced to two factors: The redistribution of resources from young and unborn generations with low or zero propensities to consume toward older generations with high consumption propensities, and a significant increase in the consumption propensities of older Americans. Most of the redistribution to the elderly reflects the growth in Social Security, Medicare, and Medicaid benefits. The increase in the elderlys consumption propensities may also reflect government policy, namely the fact that Social Security, Medicare, and Medicaid benefits are paid in the form of annuities and that, in the case of Medicare and Medicaid, the annuities are in-kind and must, therefore, be consumed.

Simulating the transmission of wealth inequality via bequests

Answering the question of how much wealth inequality arises from inheritance inequality requires data that are unavailable and potentially uncollectable. The alternative approach taken here (from Blinder [1974, 1976] and Davies [1982]) is to simulate the transmission of inequality via bequests.

The Mismatch Between Life Insurance Holdings and Financial Vulnerabilities: Evidence from the Health and Retirement Study

Using data on older workers from the 1992 Health and Retirement Survey, along with an elaborate life-cycle planning model, the authors quantify the effect of each individuals death on the financial status of his or her survivors and the degree to which life insurance holdings moderate these consequences. The average change in living standard that would result from a spouses death is small, both in absolute terms and relative to the decline that would occur without insurance. However, this average obscures a startling mismatch between insurance holdings and underlying vulnerabilities. For many of the most vulnerable, the amounts purchased are surprisingly small, and for many of the least vulnerable, the amounts are surprisingly large. As a result, uninsured vulnerabilities are quite widespread. The magnitude of these vulnerabilities, as well as the proclivity to address any given degree of vulnerability by purchasing life insurance, vary systematically with individual and household characteristics.

Fiscal and Generational Imbalances: New Budget Measures for New Budget Priorities

This paper describes the deficiencies of the measures used to calculate the federal budget, make revenue and spending projections, and assess the sustainability of current fiscal policies. The nature of the deficiencies hides the tremendous impact that Social Security and Medicare commitments will have on the budget in the future, given the way the programs are structured currently and the momentous demographic shift underway as the baby boom generation approaches retirement age. This paper proposes two new simple measures that will enable government officials and the public to calculate more accurately the costs of maintaining these programs into the relevant future. The measures provide a better understanding of the costs involved, when they will be incurred, and by whom. The measures also provide a way to meaningfully compare the various solutions that have been proposed for dealing with the impending fiscal crisis that will be caused by Social Security and Medicare. This article was also published as a monograph by the AEI Press, the publisher for the American Enterprise Institute.

Measuring Social Security's Financial Problems

The U.S. Social Security system has helped keep many retirees out of poverty. However, according to the Social Security and Medicare Trustees, Social Security faces a future financial shortfall of

Fiscal and Generational Imbalances: An Update

10.4 trillion in present value. This enormous imbalance has received little attention in public debates about Social Security. Instead, the media and policymakers continue to focus on the programs trust fund and several other ad-hoc measures that create a misleading impression of the size of Social Securitys financial problem. Although the Social Security Trust Fund is not projected to be exhausted until 2042, Social Securitys

Do the Markets Care about the

10.4 trillion present value imbalance is accruing interest and will grow by

2.4 Trillion U.S. Deficit?

600 billion during 2004 alone. The current cash-flow federal budget, however, is biased against reforms that would improve Social Securitys finances. As shown herein, a new federal accounting system would remove this bias.