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The Displacement Effect of Public Pensions on the Accumulation of Financial Assets

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  • Michael Hurd
  • Pierre‐Carl Michaud
  • Susann Rohwedder

Abstract

The generosity of public pensions may depress private savings and provide incentives to retire early. While there is plenty of evidence supporting the latter effect, there remains considerable controversy as whether or not public pensions crowd out private savings. This paper uses international micro-datasets collected over recent years to investigate whether public pensions displace private savings. The identification strategy relies on differences in the progressivity or non-linearity of pension formulas across countries. We also make use of large heterogeneity in earnings across education group and country. The evidence we present is consistent with previous studies using cross-sectional and time-series variation in savings and pensions. We estimate that an extra dollar of pension wealth depresses accumulated financial assets at the time of retirement by 23 to 44 cents and that an extra ten thousand dollars in pension wealth reduces the average retirement age by roughly 1 month.

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File URL: http://hdl.handle.net/10.1111/j.1475-5890.2012.00154.x
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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 33 (2012)
Issue (Month): 1 (03)
Pages: 107-128

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Handle: RePEc:ifs:fistud:v:33:y:2012:i:1:p:107-128

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Cited by:
  1. Blau, David M., 2011. "Pensions, Household Saving, and Welfare: A Dynamic Analysis," IZA Discussion Papers 5554, Institute for the Study of Labor (IZA).
  2. Julia Le Blanc & Alessandro Porpiglia & Federica Teppa & Junyi Zhu & Michael Ziegelmeyer, 2014. "Household saving behaviour and credit constraints in the Euro area," DNB Working Papers, Netherlands Central Bank, Research Department 428, Netherlands Central Bank, Research Department.
  3. Olivia S. Mitchell & John W. R. Phillips, 2012. "Retirement in Japan and the United States: Cross-national Comparisons using the Japanese Study of Aging and Retirement (JSTAR) and the U.S. Health and Retirement Study (HRS)," Working Papers, University of Michigan, Michigan Retirement Research Center wp270, University of Michigan, Michigan Retirement Research Center.
  4. Alessie, Rob & Angelini, Viola & van Santen, Peter, 2013. "Pension wealth and household savings in Europe: Evidence from SHARELIFE," European Economic Review, Elsevier, Elsevier, vol. 63(C), pages 308-328.

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