Abstract
In this paper we consider the design and implementation of a pay-as-you-go social-insurance system as a problem in political economy. We consider whether a society of forward-looking rational economic agents would implement a system in which the level of benefits depends on the relative shares of different age groups in the population. We calibrate a model economy to match long-run features of the U.S. economy and then look at the nature of the social-security system that results. We show that such a system would collapse given realizations of the population growth rate that the U.S. has experienced since World War II. If the benefits of the current retired generation are viewed as an obligation that must be paid, the system would survive the baby boom.
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