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The macroeconomic stabilisation effects of Social Security and 401(k) plans


  • Teresa Ghilarducci
  • Joelle Saad-Lessler
  • Eloy Fisher


This paper investigates how various retirement institutions impact the macroeconomy. We find that for every 1 percentage point increase in the output gap, net flows of various government programmes including Social Security decrease by 0.34 percentage points, while net flows of 401(k) plans increase by 0.05 percentage points. In levels, for every $1 increase in real gross domestic product, net flows from various government programmes shrink by 45 cents, whereas net flows from 401(k) plans increase by 4.6 cents. In other words, 401(k) plans reduce the automatic stabilisation impact of government programmes by 10%--15%. Moreover, we find that Social Security has a net negative effect on household consumption, while 401(k) retirement accounts work the opposite way. In fact the destabilising effect of 401(k) plans on consumption is twice as strong as the one attributed to Social Security.These results highlight a significant problem with 401(k) retirement plans and any retirement plan that is dependent on financial markets. Copyright The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Suggested Citation

  • Teresa Ghilarducci & Joelle Saad-Lessler & Eloy Fisher, 2012. "The macroeconomic stabilisation effects of Social Security and 401(k) plans," Cambridge Journal of Economics, Oxford University Press, vol. 36(1), pages 237-251.
  • Handle: RePEc:oup:cambje:v:36:y:2012:i:1:p:237-251

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    References listed on IDEAS

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    Cited by:

    1. Bermejo Patón, Fernando & Febrero Paños, Eladio & Uxó González, Jorge, 2015. "La sostenibilidad del sistema español de pensiones: Una aproximación alternativa/Sustainability of the Spanish Pension System: An Alternative View," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 33, pages 783-800, Septiembr.

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