The impact of the demographic transition on capital formation.

"The population of the United States is aging. We review a variety of the implications this has for U.S. national saving rates, and discuss the policy issues that they raise. After reviewing what different models would predict for household saving over the next several decades, we consider how the demographic transition may also affect national saving through changes in government behavior. Ways in which the composition of household saving might change as individuals age are also analyzed along with the implications of changes in government fiscal policy for asset composition."

The deficit is not a well-defined measure of fiscal policy.

Notwithstanding its widespread use, the government's deficit is not a well-defined measure of fiscal policy from the perspective of neoclassical economics; the equations of neoclassical models do not define the deficit. Rather than being a fundamental economic concept, the deficit is an arbitrary cash flow accounting construct with no necessary relation to the true stance of fiscal policy. Although the deficit is supposed to indicate how the burden of paying for the government's consumption is spread across different generations, actual changes in the measured deficit in the United States have had little if any relation to changes in the burden imposed by the government on different generations. The deficit's lack of definition is illustrated with a simple model, and the potential for misreading fiscal policy is discussed with U.S. fiscal policy in the 1980s as an example. In this article, creation of present value generational accounts are called for that would properly measure the intergenerational stance of fiscal policy.

Simulating alternative social security responses to the demographic transition.

"This paper uses a perfect foresight life cycle simulation model to examine the dynamic economic effects of baby 'booms' and baby 'busts' as well as the interaction of such demographic changes with social security policy. Demographic change can have sizeable short and long-run effects on saving rates and factors returns." The geographic focus is on the United States. "The model predicts long-run improvement in welfare associated with a prolonged baby bust. This improvement holds even in the absence of accommodating social security policy. It reflects a long-run decline in the dependency ratio, with the reduction in dependent children per worker more than offsetting the increase in retirees per worker."