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An Examination of Empirical Tests of Social Security and Savings

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  • Alan J. Auerbach
  • Laurence J. Kotlikoff

Abstract

The effect of social security and other forms of government debt on national savings is one of the most widely debated policy questions in economics today. Some estimates suggest that social security has reduced U.S. savings by almost forty percent. This paper examines recent cross-section and time series empirical tests of the social security-savings question and argues that, given current data, neither type of test has much potential for settling the controversy. In particular, there are a number of specification problems relating to social security time series regressions that can easily lead to highly unstable coefficients and to rejection of the hypothesis that social security reduces savings, even if it is actually true. These points are demonstrated by running regressions on hypothetical data generated by a perfect foresight life-cycle growth model developed previously by the authors. While the data is obtained from a model in which social security reduces the nation's capital stock by almost twenty percent, time series social security regression coefficients vary enormously depending on the specified level of the program, the preferences of hypothetical households, the level of concommitant government policies, and the time interval of the data.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0730.

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Date of creation: Aug 1981
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Publication status: published as Auerbach, Alan J. and Kotlikoff, Laurence J. "An Examination of Empirical Tests of Social Security and Savings." In Social Policy Evaluation: An Economic Perspective, E. Helpman, Assaf Razin and EfraEfraim Sadka, pp. 161-179 . New York: Academic Press, (1983).
Handle: RePEc:nbr:nberwo:0730

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References

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  1. Brunner, Karl & Meltzer, Allan H., 1976. "The Phillips curve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 1(1), pages 1-18, January.
  2. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  3. Alan J. Auerbach & Lawrence Kotlikoff, 1980. "National Savings, Economic Welfare, and the Structure of Taxation," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 570, Cowles Foundation for Research in Economics, Yale University.
  4. Martin Feldstein, 1980. "Social Security, Induced Retirement, and Aggregate Capital Accumulation:A Correction and Updating," NBER Working Papers 0579, National Bureau of Economic Research, Inc.
  5. Kotlikoff, Laurence J, 1979. "Social Security and Equilibrium Capital Intensity," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(2), pages 233-53, May.
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Cited by:
  1. Hans Fehr & Sabine Jokisch & Laurence J Kotlikoff, 2006. "Will China Eat Our Lunch or Take Us to Dinner? Simulating the Transition Paths of the US, EU, Japan and China," RBA Annual Conference Volume, Reserve Bank of Australia, in: Christopher Kent & Anna Park & Daniel Rees (ed.), Demography and Financial Markets Reserve Bank of Australia.
  2. Summers, Lawrence H, 1984. "The After-Tax Rate of Return Affects Private Savings," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 249-53, May.
  3. Sabine Jokisch & Laurence J. Kotlikoff, 2005. "Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax," NBER Working Papers 11858, National Bureau of Economic Research, Inc.
  4. Yamada, Tetsuji, 1990. "The effects of Japanese social security retirement benefits on personal saving and elderly labor force behavior," Japan and the World Economy, Elsevier, Elsevier, vol. 2(4), pages 327-363, December.
  5. Michael J. Boskin & Lawrence J. Lau, 1988. "An Analysis of U.S. Postwar Consumption and Saving: Part II -- Empirical Results," NBER Working Papers 2606, National Bureau of Economic Research, Inc.
  6. Simon Gilchrist & Egon Zakrajsek, 2007. "Investment and the Cost of Capital: New Evidence from the Corporate Bond Market," NBER Working Papers 13174, National Bureau of Economic Research, Inc.
  7. Patric H. Hendershott & Joe Peek, 1987. "Private Saving in the United States: 1950-85," NBER Working Papers 2294, National Bureau of Economic Research, Inc.
  8. Kevin C. Cheng, 2003. "Economic Implications of China's Demographics in the 21st Century," IMF Working Papers, International Monetary Fund 03/29, International Monetary Fund.
  9. Andrew B. Abel & Laurence J. Kotlikoff, 1988. "Does the Consumption of Different Age Groups Move Together? A New Nonparametric Test of Intergenerational Altruism," NBER Working Papers 2490, National Bureau of Economic Research, Inc.
  10. Lawrence H. Summers, 1982. "Tax Policy, the Rate of Return, and Savings," NBER Working Papers 0995, National Bureau of Economic Research, Inc.
  11. Søren Nielsen, 1994. "Social security and foreign indebtedness in a small open economy," Open Economies Review, Springer, Springer, vol. 5(1), pages 47-63, March.
  12. Marc Robinson, 1983. "Social Security and Physical Capital: An Interpretation of the Evidence, Lessons and Outlook," UCLA Economics Working Papers, UCLA Department of Economics 307, UCLA Department of Economics.

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