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The effect of mandated savings on private consumption: Evidence from Israel's pension reform

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  • Frish, Roni

Abstract

This study examines the impact of the Government Mandatory Pension Order (GMPO) on household consumption. The GMPO, which came into force in Israel in 2008, required contributing to a pension fund at a gradually increasing rate, up to 17.5 percent of wages in 2014 and afterwards. The study uses a diff-in-diff method to compare the development of household consumption expenditure where the household heads did not contribute to a pension fund before 2008 (“Treated”), with that of a group doing so willingly before 2008 ("Control"). The data sources are Israel's Central Bureau of Statistics’ annual Household Expenditure Surveys for the period 2004 through 2016 and Israel Tax Authority data on personal pension contributions. The study rejects the null hypothesis that the treatment has null effect on the consumption of the treated group in the treatment period. However, since the p-value is between 0.05–0.10 the study could not reject the null hypothesis for the conventional p-value threshold of 0.05.

Suggested Citation

  • Frish, Roni, 2025. "The effect of mandated savings on private consumption: Evidence from Israel's pension reform," Research in Economics, Elsevier, vol. 79(2).
    • Handle: RePEc:eee:reecon:v:79:y:2025:i:2:s1090944325000158
    DOI: 10.1016/j.rie.2025.101038
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    References listed on IDEAS

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    1. Emma Aguila, 2011. "Personal Retirement Accounts and Saving," American Economic Journal: Economic Policy, American Economic Association, vol. 3(4), pages 1-24, November.
    2. Raj Chetty & John N. Friedman & Søren Leth-Petersen & Torben Heien Nielsen & Tore Olsen, 2014. "Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts: Evidence from Denmark," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1141-1219.
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    4. Adi Brender, 2011. "First Year of the Mandatory Pension Arrangement: Compliance with the Arrangement as an Indication of its Potential Implications for Labor Supply," Bank of Israel Working Papers 2011.05, Bank of Israel.
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    6. Orazio P. Attanasio & Susann Rohwedder, 2003. "Pension Wealth and Household Saving: Evidence from Pension Reforms in the United Kingdom," American Economic Review, American Economic Association, vol. 93(5), pages 1499-1521, December.
    7. Pedro Tonon Zuanazzi & Adelar Fochezatto & Marcos Vinicio Wink Junior, 2018. "Social Security Reform and Personal Saving: Evidence from Brazil," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(9), pages 1-26, September.
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