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Household Saving Rates and the Design of Social Security Programmes: Evidence from a Country Panel

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  • Richard Disney
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    Abstract

    I argue that the offsetting effect of social security contributions on household retirement saving depends on how closely the social security programme imitates a private retirement saving plan (i.e. the ‘actuarial’ component of the social security programme) – the closer the design of the programme to a private retirement saving plan, the higher the offset. I estimate the determinants of household saving rates in a cross-country panel, augmenting standard measures of social security programme generosity and cost by indicators that proxy the actuarial component of the programme. These indicators affect saving rates as predicted; moreover they also affect labour force participation rates of older women (but not men). The findings are consistent with the view that more actuarially-based public programmes are treated by participants as a mandatory saving programme rather than as a tax-and-transfer system, thereby raising labour force participation rates but also increasing the programme’s substitutability for private retirement saving.

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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1541.

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    Date of creation: 2005
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    Handle: RePEc:ces:ceswps:_1541
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    Keywords: social security reform; household saving;

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    1. Richard Disney, 2000. "The Impact of Tax and Welfare Policieson Employment and Unemployment in OECD Countries," IMF Working Papers 00/164, International Monetary Fund.
    2. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Working Paper Series 580, Research Institute of Industrial Economics.
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    4. Leimer, Dean R & Lesnoy, Selig D, 1982. "Social Security and Private Saving: New Time-Series Evidence," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 606-29, June.
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    8. Martin Feldstein, 1995. "Social Security and Saving: New Time Series Evidence," NBER Working Papers 5054, National Bureau of Economic Research, Inc.
    9. CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, . "Political sustainability and the design of social insurance," CORE Discussion Papers RP -1449, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    11. Orazio P. Attanasio & Agar Brugiavini, 2003. "Social Security And Households' Saving," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 1075-1119, August.
    12. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 315-407.
    13. Jeff Dominitz & Charles F. Manski & Jordan Heinz, 2003. ""Will Social Security Be There For You?": How Americans Perceive Their Benefits," NBER Working Papers 9798, National Bureau of Economic Research, Inc.
    14. Christopher Pissarides, 1997. "The impact of employment tax cuts on unemployment and wages : the role of unemployment benefits and tax structure," LSE Research Online Documents on Economics 2332, London School of Economics and Political Science, LSE Library.
    15. Alessie, R.J.M. & Kapteyn, A. & Klijn, F.E., 1997. "Mandatory pensions and personal savings in The Netherlands," Other publications TiSEM dcff6ab7-1712-4830-bafe-3, School of Economics and Management.
    16. Feldstein, Martin, 1996. "Social Security and Saving: New Time Series Evidence," National Tax Journal, National Tax Association, vol. 49(2), pages 151-64, June.
    17. Erwin Ooghe & Erik Schokkaert & Jef Flechet, 2003. "The Incidence of Social Security Contributions: An Empirical Analysis," Empirica, Springer, vol. 30(2), pages 81-106, June.
    18. Alessie, R.J.M. & Kapteyn, A. & Klijn, F.E., 1997. "Mandatory pensions and personal savings in The Netherlands," Discussion Paper 1997-39, Tilburg University, Center for Economic Research.
    19. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
    20. Kotlikoff, Laurence J, 1979. "Testing the Theory of Social Security and Life Cycle Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 396-410, June.
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    22. Martin Feldstein, 1980. "International differences in social security and saving," NBER Chapters, in: Econometric Studies in Public Finance, pages 225-244 National Bureau of Economic Research, Inc.
    23. Eric M. Engen & William G. Gale, 1997. "Effects of Social Security reform on private and national saving," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 41(Jun), pages 103-142.
    24. Robert K. Triest, 1997. "Social Security reform: an overview," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 41(Jun), pages 1-18.
    25. Feldstein, Martin S, 1987. "Should Social Security Benefits Be Means Tested?," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 468-84, June.
    26. Tullio Jappelli & Franco Modigliani, 1998. "The Age-Saving Profile and the Life-Cycle Hypothesis," CSEF Working Papers 09, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    27. Richard Disney, 2004. "Are contributions to public pension programmes a tax on employment?," Economic Policy, CEPR;CES;MSH, vol. 19(39), pages 267-311, 07.
    28. Hubbard, R Glenn, 1986. "Pension Wealth and Individual Saving: Some New Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(2), pages 167-78, May.
    29. Disney, Richard, 2000. "Declining public pensions in an era of demographic ageing: Will private provision fill the gap?," European Economic Review, Elsevier, vol. 44(4-6), pages 957-973, May.
    30. Koskela, Erkki & Viren, Matti, 1983. "Social Security and Household Saving in an International Cross Section," American Economic Review, American Economic Association, vol. 73(1), pages 212-17, March.
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    Cited by:

    1. Richard Disney, 2006. "Macroeconomic Performance and the Design of Public Pension Programmes," The Economic and Social Review, Economic and Social Studies, vol. 37(2), pages 175-195.

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