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Can Shift to a Funded Pension System Affect National Saving? The Case of Iceland

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Author Info

  • Mariangela Bonasia

    ()
    (University of Naples, Parthenope)

  • Oreste Napolitano

    ()
    (University of Naples, Parthenope)

Abstract

Across industrialised and developing countries public pension systems have been heavily reformed during the last two decades. The major concern relates the financial sustainability of pay-as-you-go pension schemes. The proposals to privatize social security lead to the creation of a multipillar system. This study assesses the validity of the effect of pension reforms on domestic savings in two steps: first, to test for the existence of a long-run relationship, we use an ARDL model; second, we employ the Kalman filter algorithm, in order to recover the parameter dynamics overtime. We analyse the case of Iceland because its pension system is characterized by a large mandatory private pillar. The empirical evidence supports the widely held view that growing mandatory pension funds financial assets has significantly positive impact on national saving. Moreover, we show that the pattern of the pension funds’ coefficients seems to capture well the economic dynamic of the period. The coefficients of the funded pillars illustrate a shift upward soon after the launch of the reforms in 1998. Later on, these coefficients show a negative trend till the middle of 2004 and they increase sharply until the beginning of 2006. Afterwards, following the Icelandic and international financial crisis, they strongly declines.

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Bibliographic Info

Article provided by ASERS Publishing in its journal Theoretical and Practical Research in Economic Fields.

Volume (Year): I (2010)
Issue (Month): 1 (June)
Pages: 12-26

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Handle: RePEc:srs:tpref1:2:v:1:y:2010:i:1:p:12-26

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Web page: http://www.asers.eu/journals/tpref.html

Related research

Keywords: national saving; pension funds; multipillar system; ARDL model; Kalman filter;

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Cited by:
  1. Ashok Thomas & Luca Spataro, 2013. "Pension funds and Market Efficiency: A review," Discussion Papers 2013/164, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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