Sergio Villar Vallenas
Institutional Affiliation: Boston University
NBER Working Papers and Publications
|December 2018||The True Cost of Social Security|
with Alexander W. Blocker, Laurence J. Kotlikoff, Stephen A. Ross
in Tax Policy and the Economy, Volume 33, Robert A. Moffitt, editor
Implicit government obligations represent the lion's share of government liabilities in the U.S. and many other countries. Yet these liabilities are rarely measured let alone properly adjusted for their risk. This paper shows, by example, how modern asset pricing can be used to value implicit fiscal debts taking into account their risk properties. The example is the U.S. Social Security System's net liability to working-age Americans. Marking this debt to market makes a big difference. Its market value is 86 percent higher than the Social Security trustees' valuation method suggests.