Advanced Search
MyIDEAS: Login

How Does Pension Reform Affect Savings and Welfare

Contents:

Author Info

  • Rodrigo Cifuentes
Registered author(s):

    Abstract

    This paper explores the effects of pension reform on precautionary savings, wealth accumulation and welfare. The impact of pension programs on income uncertainty through life has been largely ignored in the literature of precautionary savings and pension reform. This paper uses dynamic programming techniques to solve for the optimal consumption of a worker that faces uncertainty on labor and retirement income. Subsequently, with parameter values for the U.S., I study the impact of two policies on workers with different on educational levels. One is the elimination of redistribution in the current benefits formula. The second is the change from system defined in benefits (DB) to one defined in contributions (DC). In the first case, results show that redistribution is valued positively by all types of agents, even by those who expect losses from it, given their expected income. As a consequence, workers increase their savings to prepare for the increased uncertainty. The increase in aggregate savings is in the order of 4%. The second case has the opposite consequences. Welfare increases with the adoption of the DC system because it has superior insurance properties. The advantage consists in that periods on which the variance of income is lower receive a higher weight in the calculation of benefits. Precautionary savings are reduced with a fall in aggregate savings of 1.4%.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc80.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 80.

    as in new window
    Length:
    Date of creation: Oct 2000
    Date of revision:
    Handle: RePEc:chb:bcchwp:80

    Contact details of provider:
    Postal: Casilla No967, Santiago
    Phone: (562) 670 2000
    Fax: (562) 698 4847
    Web page: http://www.bcentral.cl/
    More information through EDIRC

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Antonio Rangel & Richard Zeckhauser, 2001. "Can Market and Voting Institutions Generate Optimal Intergenerational Risk Sharing?," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 113-152 National Bureau of Economic Research, Inc.
    2. Andrew A. Samwick, 1997. "Discount Rate Heterogeneity and Social Security Reform," NBER Working Papers 6219, National Bureau of Economic Research, Inc.
    3. Christopher D. Carroll, 1996. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," NBER Working Papers 5788, National Bureau of Economic Research, Inc.
    4. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-67, June.
    5. Martin Feldstein & Andrew Samwick, 1997. "The Economics of Prefunding Social Security and Medicare Benefits," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 115-164 National Bureau of Economic Research, Inc.
    6. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
    7. Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
    8. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
    9. Stephen Zeldes, . "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," Rodney L. White Center for Financial Research Working Papers 20-86, Wharton School Rodney L. White Center for Financial Research.
    10. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
    11. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:80. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.