| Demographic trends in recent years--declining mortality and fertility rates--have led to the projection of a demographic transition, from a relatively low aged dependency ratio in the 20th century to a high ratio in the early 21st century. This thesis demonstrates that the projections of long-term deficits led to an abrupt policy shift in the 1977-83 period from a pay-as-you-go policy to a partial reserve fund financing policy for the Old-Age and Survivors Insurance (OASI) program. The political-economic history of policymaking for OASI in the 1977-83 period is reviewed, where it is demonstrated that the partial reserve fund financing policy was adopted in the 1977-83 period without discussion of the implications of, or reasons for, shifting from pay-as-you-go financing of the OASI program. In an overlapping generations model, where the government's objective function is intergenerationally-neutral and an unanticipated change in the aged dependency ratio occurs, a hypothesis is developed to show that, under certain conditions, the partial reserve fund financing policy meets the intergenerational equity goal of the OASI program. This hypothesis is tested in a general model of the government sector, where the macroeconomic and distributional effects of the partial reserve financing policy are shown to depend crucially on the effects of the balances in the OASI trust funds on other government expenditures and revenues. Finally, a simulation model is used to develop empirical comparisons of individual rates of return under the partial reserve fund policy and other financing policies. |
