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Implications of Increasing College Attainment for Aging in General Equilibrium

Juan Carlos Conesa, Timothy J. Kehoe, Vegard M. Nygaard, Gajendran Raveendranathan

NBER Working Paper No. 26000
Issued in June 2019, Revised in January 2020
NBER Program(s):Economic Fluctuations and Growth, Health Care, Health Economics

We develop an overlapping generations general equilibrium model of the U.S. economy with heterogeneous consumers who face idiosyncratic earnings and health risk to study the implications of increasing college attainment, decreasing fertility, and increasing longevity (2005–2100). While all three trends contribute to a higher old age dependency ratio, increasing college attainment has different implications because it increases labor productivity. Decreasing fertility and increasing longevity require the government to increase the average labor tax rate from 33.5 to 47.1 percent. Increasing college attainment lowers the required tax increase by 12.0 percentage points. The labor tax rate required to balance the government budget is higher under general equilibrium than in a small open economy with a constant interest rate, because the reduction in the interest rate lowers capital income tax revenues.

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Document Object Identifier (DOI): 10.3386/w26000

Published: Juan Carlos Conesa & Timothy J. Kehoe & Vegard M. Nygaard & Gajendran Raveendranathan, 2019. "Implications of Increasing College Attainment for Aging in General Equilibrium," European Economic Review, . citation courtesy of

 
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