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Portfolio Allocation in the Face of a Means-Tested Public Pension

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Author Info
Cobb-Clark, Deborah A. () (Australian National University)
Hildebrand, Vincent A. () (York University, Canada)

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Abstract

Is there evidence that households adjust their asset portfolios just prior to retirement in response to a means-tested public pension? We address this question by estimating a system of asset equations constrained to add up to net worth. We find little evidence that in 2006 healthy households or couples responded to the incentives embedded in the means test determining pension eligibility by reallocating their assets. While there are some significant differences in asset portfolios associated with being near the income threshold, being of pensionable age, and being in poor health these differences are often only marginally significant, are not robust across time, and are not clearly consistent with the incentives inherent in the pension eligibility rules. In 2006, any behavioral response to the means test seems to occur among single pensioners in poor health. Comparison with 2002 results suggests the incentives to reallocate assets may have weakened over time.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4481.

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Length: 39 pages
Date of creation: Oct 2009
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Handle: RePEc:iza:izadps:dp4481

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Related research
Keywords: asset portfolios; means testing; public pension; household wealth;

Other versions of this item:

Find related papers by JEL classification:
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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References listed on IDEAS
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  1. David M. Knox, 1995. "The Age Pension: Means Tested or Universal?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 28(3), pages 107-110. [Downloadable!] (restricted)
  2. David M. Blau, 2008. "Retirement and Consumption in a Life Cycle Model," Journal of Labor Economics, University of Chicago Press, vol. 26, pages 35-71. [Downloadable!]
    Other versions:
  3. Michael Hurd & Arie Kapteyn, 2003. "Health, Wealth, and the Role of Institutions," Journal of Human Resources, University of Wisconsin Press, vol. 38(2). [Downloadable!] (restricted)
    Other versions:
  4. Cobb-Clark, Deborah A. & Hildebrand, Vincent, 2002. "The Wealth and Asset Holdings of U.S.-Born and Foreign-Born Households: Evidence from SIPP Data," IZA Discussion Papers 674, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. M. Atkinson & John Creedy & David Knox, 1999. "Alternative Retirement Income Arrangements and Lifetime Income Inequality: Lessons From Australia," International Tax and Public Finance, Springer, vol. 6(1), pages 103-117, February. [Downloadable!] (restricted)
  6. Whitehouse, Edward & Queisser, Monika, 2007. "Pensions at a glance: public policies across OECD countries," MPRA Paper 16349, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  7. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring. [Downloadable!] (restricted)
  8. Michaud, Pierre-Carl & van Soest, Arthur, 2008. "Health and wealth of elderly couples: Causality tests using dynamic panel data models," Journal of Health Economics, Elsevier, vol. 27(5), pages 1312-1325, September. [Downloadable!] (restricted)
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  9. Bruce Headey & Gary Marks & Mark Wooden, 2005. "The Structure and Distribution of Household Wealth in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 38(2), pages 159-175, 06. [Downloadable!] (restricted)
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  10. Garry F. Barrett & Yi-Ping Tseng, 2008. "Retirement Saving in Australia," Canadian Public Policy, University of Toronto Press, vol. 34(s1), pages 177-193, November. [Downloadable!] (restricted)
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  11. Jonathan Gruber & David Wise, 2001. "An International Perspective on Policies for an Aging Society," NBER Working Papers 8103, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Bateman, Hazel & Ablett. John, 2000. "Compulsory Superannuation and Australian Generational Accounts," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 30(1), pages 33-48, March. [Downloadable!]
  13. Mark Wooden & Simon Freidin & Nicole Watson, 2002. "The Household, Income and Labour Dynamics in Australia (HILDA)Survey: Wave 1," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(3), pages 339-348. [Downloadable!] (restricted)
  14. Francine D. Blau & John W. Graham, 1990. "Black-White Differences in Wealth and Asset Composition," NBER Working Papers 2898, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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