Abstract

The US welfare is evolving along an unsustainable path. By 2050 the share of the federal welfare programs alone will approach 25% of GDP, i.e. a share higher than the current share of the federal government in the economy. Because of the strain that the growing pension and public health programs will put on the budget, taxation will have to rise and its share of GDP more than double from now to 2050. If, in addition, we suppose that the current account deficit will stay at current levels, the US foreign debt will rise above 100% of GDP. Therefore, if the current trends persist, in 2050 the US will be a much less attractive country for work and investment, burdened as it will be by high taxes and huge macroeconomic imbalances. In the last 15 years ambitious plans have been put forward to guarantee the solvency of the US welfare system. But these attempts failed or are faltering. The main explanation of these failures may reside in a number of US structural rigidities that make it very difficult to pass reforms implying a significant amount of income redistribution.