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Social Security, Uncertainty Adjustments and the Consumption Decision

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  • Leimer, Dean R
  • Richardson, David H

Abstract

This paper analyzes the consumption decision, focusing on the degree of substitutability between fungible assets and prospective wealth and on the different risk adjustments associated with different types of prospective wealth. The results reveal substantial differences among these risk adjustments and imply that a dollar of social security wealth substitutes for about three-fifths of a dollar of fungible assets. Although implying that social security wealth reductions would have a positive and sizeable effect on private saving, the results also suggest that such reductions could entail a substantial loss in consumer welfare. Copyright 1992 by The London School of Economics and Political Science.

Suggested Citation

  • 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 311-335, August.
  • Handle: RePEc:bla:econom:v:59:y:1992:i:235:p:311-35
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    Cited by:

    1. David Blake, 2004. "The impact of wealth on consumption and retirement behaviour in the UK," Applied Financial Economics, Taylor & Francis Journals, vol. 14(8), pages 555-576.
    2. James E. Duggan & Robert Gillingham & John S. Greenlees, 1993. "Returns Paid To Early Social Security Cohorts," Contemporary Economic Policy, Western Economic Association International, vol. 11(4), pages 1-13, October.
    3. Silvia Sgherri & Tamim Bayoumi, 2006. "Mr. Ricardo’s Great Adventure; Estimating Fiscal Multipliers in a Truly Intertemporal Model," IMF Working Papers 06/168, International Monetary Fund.
    4. Julia Lynn Coronado, 1998. "The effects of social security privatization on household saving: evidence from the Chilean experience," Finance and Economics Discussion Series 1998-12, Board of Governors of the Federal Reserve System (U.S.).
    5. Tamim Bayoumi & Silvia Sgherri, 2007. "On the Impact of Income and Policy Shocks on Consumption," DNB Working Papers 152, Netherlands Central Bank, Research Department.
    6. Silvia Sgherri & Tamim Bayoumi, 2009. "On Impatience and Policy Effectiveness," IMF Working Papers 09/18, International Monetary Fund.

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