The True Cost of Social Security

35 Pages Posted: 23 Oct 2008 Last revised: 29 Oct 2008

See all articles by Alexander W. Blocker

Alexander W. Blocker

Boston University

Laurence J. Kotlikoff

Boston University - Department of Economics; National Bureau of Economic Research (NBER); Gaidar Institute for Economic Policy

Stephen A. Ross

Massachusetts Institute of Technology (MIT) - Sloan School of Management; Yale University - International Center for Finance

Date Written: October 2008

Abstract

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 23 percent larger than the Social Security trustees' valuation method suggests.

Suggested Citation

Blocker, Alexander W. and Kotlikoff, Laurence J. and Ross, Stephen A., The True Cost of Social Security (October 2008). NBER Working Paper No. w14427. Available at SSRN: https://ssrn.com/abstract=1288426

Alexander W. Blocker

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Laurence J. Kotlikoff (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4002 (Phone)
617-353-4449 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gaidar Institute for Economic Policy

Gazetny per. 5-3
Moscow, 125993
Russia

Stephen A. Ross

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States
203-432-6015 (Phone)
203-432-8931 (Fax)

Yale University - International Center for Finance

Box 208200
New Haven, CT 06520-8200
United States

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