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This paper empirically estimates sustainable sovereign debt limits for 27 OECD countries, updating the model in Ghosh et al. (2013). We assess fiscal reaction functions, confirming the fiscal fatigue hypothesis, where gross debt levels exceeding 140-145% of GDP begin to impair a country's ability to manage public spending and deficits. Using historical and projected interest rate-to-economic growth differentials, different country samples and updated time periods, we estimate countries' sustainable debt limits, on both a gross and net of central bank holdings of government debt basis. Gross and net debt limits are between 136%-234% of GDP and 181%-268%, respectively. There are some indications of restricted fiscal flexibility for Canada, France, Italy, the UK, the US, Portugal and Spain. The US, in particular, for one estimate, has a sustainable gross debt limit of 154% of GDP, which is only about 30 percentage points above its current gross debt level, projected to be reached by 2034., When federal budget deficits in the US routinely exceed 5 percent of GDP, even in good economic times, and the debt outstanding of the federal government approaches 100 percent of [...]

There is a large professional literature on the correct measurement of the funded status of and indicated employer contributions to government employee pension plans. But static measures do not provide a quantification of the risk that plans could represent in the future in various possible investment environments. This is better done through stochastic simulation projections. Using a 2022 data base of 187 large pension plans, basic plan features and conditions, actuarial relationships, simple economic projections, and varied bond and stock investment returns based on past ten-year historical periods in the US and the current asset allocation of the plans, I create a risk model. This risk assessment is denominated as the range of reasonably possible future actuarial funded ratios and amounts of indicated employer contributions across plans, when investment performance is poor but within historical experience. Several plans would be at or near insolvency, about 13 percent of plans would see very large drops in funded status, while employer contributions would, on average, double, and for about one in eight plans, triple. Highlights * At the median of historical investment experience, the mean plan funded ratio is projected to increase from about 75 percent in 2022 to around 82 percent in 2032. But at the 25th and 10th percentile simulations, the average plan funded ratio is 66 and 56 percent, respectively, in 2032. * At the fiftieth percentile, employer contributions decline by $17 billion in aggregate from 2022 to 2032 or 13 percent. But if investment conditions do not turn out so well, at the 75th percentile (the obverse of the 25th percentile for funded ratios), aggregate contributions increase by $73 billion, or 57 percent, and at the 90th percentile, in a rough investment (and presumably economic) environment, aggregate contributions nearly double, increasing by $127 billion. * Another measure of risk--the ratio of the standard deviation to the mean of indicated contributions projected in 2032--is high, at 0.81, for the median plan, and above 0.97 for about a quarter of the plans. Keywords and JEL Codes Public pension plans, funding, costs, investment risk, stochastic projections G17, G23, H75, J32, Introduction There is a large professional literature on the correct measurement of the funded status of or indicated employer contributions to defined benefit plans, both in the private and public [...]

In the official models used by the Treasury and the Social Security and Medicare Trustees for projections and policy analysis, many key variables--like interest rates--are assumed as a continuation of past trends. Even the Congressional Budget Office (CBO)--with a more sophisticated growth model--does not consider supply factors determining future health care costs. By contrast, in our model, these variables are simultaneously determined by supply and demand, based on logical functional forms and deep parameter estimates from the literature or empirical analysis. This approach provides projections which better reflect real economic relationships--like those that exist between health care spending, the federal budget, and investment in capital--and changing underlying conditions, especially demographics. Within the next ten years, we find the federal government budget deficit relative to national income will grow significantly beyond historical experience and should be regarded as unsustainable. We project that debt-to-GDP will be 136 percent in 2032 and 264 percent in 2052, compared to CBO's 112 percent and 177 percent, respectively. Real interest rates rise in the long run in a ratcheting cycle of higher interest payments and growing deficits and debt. Our projection of national health expenditures relative to GDP in 2072 is 31.4 percent, compared to 28.4 percent by the Centers for Medicare & Medicaid Services (CMS), used by the Medicare Trustees. These higher rates of health care inflation arise from labor shortage effects in an aging economy because health care is produced in a low productivity, labor-dependent sector. This rise in health care expenditures further deteriorates the federal budget and lowers consumer welfare. Acknowledgements: We appreciate helpful comments from and discussions with James Capretta, Jesus Fernandez-Villaverde, Jagadeesh Gokhale, Steve Robinson, and seminar participants at the American Enterprise Institute and the Savings and Retirement Foundation. All opinions expressed and mistakes made are our own and not theirs, nor our organizations'., Introduction There are several official medium- and long-range economic and financial projections of various federal programs, economic sectors, and government budgets in the US. The Social Security and Medicare Trustees [...]

This report expands on a standard empirical estimation of the relationship between federal deficits and debt and long-term interest rates. It follows closely a 2019 long blog post by Ernie Tedeschi, which is itself an update and extension of Francis Warnock and Veronica Cacdac Warnock (2009). Using data from September 1981 to May 2022, we find that a 1 percentage point increase in the federal debt-to-gross-domestic-product ratio is associated with an increase of nearly five basis points in the long-term interest rate. This is a larger effect than generally found in the literature and double what the Congressional Budget Office uses in its budget projections, which we attribute to our more complete specification of Federal Reserve policy., Although it might seem obvious that higher deficits would cause interest rates to rise as the federal government competes with the private sector and state and local governments for funds, [...]

It is well established from research studies and basic data analysis that there is an exponential relationship between age and the infection to fatality ratio for COVID-19. Hence, the high mortality of the pandemic has been concentrated among the elderly. The close living arrangements of nursing homes exacerbated that tendency, and mortality from COVID was initially very high there. The vector of infection often came from staff. In the absence of vaccines and effective medical treatment and natural immunity, various non-pharmaceutical interventions were imposed by governments on general society and nursing homes. The evidence on their effectiveness is modest and mixed, although they seemed to have had at least temporary reducing effects. But the price of these socially isolating interventions was high on other causes of death, including in nursing homes. Hence, with the availability of effective vaccines, and more recently boosters, it was essential to the reduction of national mortality that quick and complete treatment focus be on the elderly, nursing home residents, and their caregivers. Although there has been substantial progress here, especially seen with reduced mortality at nursing homes, spikes still occur, and vaccine hesitancy gaps remain. So more needs to be done, especially for boosters and especially for staff, as the US now discusses and implements the return to normalcy. A targeted mix of mandates and incentives and culturally aware effective outreach are appropriate for these groups., Policy discussions regarding COVID-19 in the US, and in other countries, are now moving away from a crisis pandemic stance and towards a return to more normal conditions in education, [...]

In a prior article (Warshawsky and Marchand, 2017), a colleague and I put forward some broad proposals to improve the system of financing long-term services and supports (LTSS) for older Americans, to make it fairer, more sustainable, and more consistent with the value of self-reliance. In this report, I update the basis for those proposals and make them more specific, so that legislation could be written to implement them. Based on newly available unpublished data, I calculate a new lower bound estimate of how much additional resources would be available to states and the federal government from more effective enforcement of the estate recovery rules in Medicaid for LTSS--$3 billion instead of the current $700 million collected nationally. This estimate is based on the superior but not remarkable efforts of a few states, compared to the mediocre activity of many states and the nearly non-existent efforts of a few. I also explain how the state Medicaid LTSS eligibility and recovery rules could be better designed and administered, in particular by including retirement accounts as countable assets and outlawing various transfer techniques used by the well-to-do to qualify. These recommendations are in strong contrast to those contained in a recent report from the Medicaid and CHIP Payment and Access Commission (MACPAC), which recommended that estate recovery should be made optional for states and passed on addressing other fairness issues. In light of the falling birth rate in the US, which will increase the demand for paid LTSS care in the future even beyond the aging of the baby boom generation already increasing the Medicaid funding burden on governments, and the continued failure of California to follow federal Medicaid laws and its proposal to waive all asset tests, the reforms I recommend here for federal Medicaid matching to encourage state efforts and changes and to encourage individuals' insurance and asset accumulation are essential., A Brief Review of the Issues and the Recent Literature LTSS refers to a broad range of health and health-related services and assistance needed for an extended period of time [...]