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The effects of social security privatization on household saving: evidence from the Chilean experience

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Author Info
Julia Lynn Coronado
Abstract

In recent years, a handful of countries have converted the financing of their social security systems from pay-as-you-go (PAYGO) to partial or full funding. Privatization is viewed as one way to insulate social security from the political and demographic pressures that currently threaten the financial stability of PAYGO systems. However, privatization would improve a nation's situation only if such a reform increases domestic saving. In this paper I use evidence from Chile, where social security was privatized in 1981, to assess the impact of such a reform on household saving rates. I find that the reform provided a significant stimulus for saving among higher income households, increasing their saving rates by more than seven percentage points. This increase in saving at the household level translates into an increase in national saving of more than two percent of GDP.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1998-12.

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Date of creation: 1998
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Handle: RePEc:fip:fedgfe:1998-12

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Keywords: Social security ; Privatization ; Chile;

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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.:
  1. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
    Other versions:
  2. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
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  3. Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 3-95, Wharton School Rodney L. White Center for Financial Research.
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  5. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," NBER Working Papers 5571, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Felipe G. Morandé, 1996. "Savings in Chile: What Went Right?," RES Working Papers 4030, Inter-American Development Bank, Research Department. [Downloadable!]
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  7. Bernheim, B. Douglas, 1987. "The economic effects of social security : Toward a reconciliation of theory and measurement," Journal of Public Economics, Elsevier, vol. 33(3), pages 273-304, August. [Downloadable!] (restricted)
  8. Dicks-Mireaux, Louis & King, Mervyn, 1984. "Pension wealth and household savings: Tests of robustness," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 115-139. [Downloadable!] (restricted)
  9. Thomas Sargent & He Huang & Selo Imrohoroglu, . "Two Computational Experiments to Fund Social Security," Papers _002, Stanford University, Hoover Institution. [Downloadable!]
  10. Leimer, Dean R & Richardson, David H, 1992. "Social Security, Uncertainty Adjustments and the Consumption Decision," Economica, London School of Economics and Political Science, vol. 59(235), pages 311-35, August. [Downloadable!] (restricted)
  11. repec:fth:inadeb:322 is not listed on IDEAS
  12. David Altig & Jagadeesh Gokhale, 1997. "Social Security privatization: a simple proposal," Working Paper 9703, Federal Reserve Bank of Cleveland. [Downloadable!]
  13. Randall P. Mariger, 1997. "Social security privatization: what it can and cannot accomplish," Finance and Economics Discussion Series 1997-32, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  14. Kotlikoff, Laurence J, 1979. "Testing the Theory of Social Security and Life Cycle Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 396-410, June. [Downloadable!] (restricted)
  15. Diamond, P. A. & Hausman, J. A., 1984. "Individual retirement and savings behavior," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 81-114. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Herman Bennett & Norman Loayza & Klaus Schmidt-Heb, 2000. "Un Estudio del Ahorro Agregado por Agentes Económicos en Chile," Working Papers Central Bank of Chile 85, Central Bank of Chile. [Downloadable!]
  2. Andrea Butelmann & Francisco Gallego, 2001. "Estimaciones de los Determinantes del Ahorro Voluntario de los Hogares en Chile (1988 Y 1997)," Working Papers Central Bank of Chile 97, Central Bank of Chile. [Downloadable!]
  3. Andrea Butelmann & Francisco Gallego, 2000. "Household Saving in Chile: Microeconomic Evidence," Working Papers Central Bank of Chile 63, Central Bank of Chile. [Downloadable!]
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  4. Andrea Butelmann & Francisco Gallego, 2001. "Household Saving in Chile (1988 and 1997): Testing the Life Cycle Hypothesis," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 38(113), pages 3-48. [Downloadable!]
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