IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/1998-12.html
   My bibliography  Save this paper

The effects of social security privatization on household saving: evidence from the Chilean experience

Author

Listed:
  • Julia Lynn Coronado

Abstract

In recent years, a handful of countries have converted the financing of their social security systems from pay-as-you-go (PAYGO) to partial or full funding. Privatization is viewed as one way to insulate social security from the political and demographic pressures that currently threaten the financial stability of PAYGO systems. However, privatization would improve a nation's situation only if such a reform increases domestic saving. In this paper I use evidence from Chile, where social security was privatized in 1981, to assess the impact of such a reform on household saving rates. I find that the reform provided a significant stimulus for saving among higher income households, increasing their saving rates by more than seven percentage points. This increase in saving at the household level translates into an increase in national saving of more than two percent of GDP.

Suggested Citation

  • 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.).
    • Handle: RePEc:fip:fedgfe:1998-12
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/feds/1998/199812/199812abs.html
    Download Restriction: no
    File URL: http://www.federalreserve.gov/pubs/feds/1998/199812/199812pap.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
    2. repec:idb:wpaper:322 is not listed on IDEAS
    3. 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.
    4. Sheldon Danziger & Jacques Van Der Gaag & Eugene Smolensky & Michael K. Taussig, 1983. "The Life-Cycle Hypothesis and the Consumption Behavior of the Elderly," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 5(2), pages 208-227, January.
    5. 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.
    6. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    7. Martin Feldstein & Andrew Samwick, 1997. "The Economics of Prefunding Social Security and Medicare Benefits," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 115-164, National Bureau of Economic Research, Inc.
    8. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 72-101, July.
    9. Morande, Felipe G., 1998. "Savings in Chile. What went right?," Journal of Development Economics, Elsevier, vol. 57(1), pages 201-228, October.
    10. Morandé, Felipe, 1996. "Savings in Chile: What Went Right?," IDB Publications (Working Papers) 6194, Inter-American Development Bank.
    11. Randall P. Mariger, 1997. "Social security privatization: what it can and cannot accomplish," Finance and Economics Discussion Series 1997-32, Board of Governors of the Federal Reserve System (U.S.).
    12. Diamond, P. A. & Hausman, J. A., 1984. "Individual retirement and savings behavior," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 81-114.
    13. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
    14. Dicks-Mireaux, Louis & King, Mervyn, 1984. "Pension wealth and household savings: Tests of robustness," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 115-139.
    15. Bernheim, B. Douglas, 1987. "The economic effects of social security : Toward a reconciliation of theory and measurement," Journal of Public Economics, Elsevier, vol. 33(3), pages 273-304, August.
    16. Felipe Morandé, 1996. "Savings in Chile: What Went Right?," IDB Publications (Working Papers) 5922, Inter-American Development Bank.
    17. David E. Altig & Jagadeesh Gokhale, 1997. "Social Security privatization: a simple proposal," Working Papers (Old Series) 9703, Federal Reserve Bank of Cleveland.
    18. 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.
    19. Robert Holzmann, 1997. "Pension Reform, Financial Market Development, and Economic Growth: Preliminary Evidence from Chile," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 149-178, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrea Repetto, 2001. "Incentivos al ahorro personal: Lecciones de la economía del comportamiento," Central Banking, Analysis, and Economic Policies Book Series, in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edit (ed.),Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 7, pages 191-240, Central Bank of Chile.
    2. Andrea Butelmann & Francisco Gallego, 2001. "Estimaciones de los determinantes del ahorro coluntario de los hogares en Chile (1988-1997)," Central Banking, Analysis, and Economic Policies Book Series, in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edit (ed.),Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 6, pages 141-190, Central Bank of Chile.
    3. Herman Bennett & Norman Loayza & Klaus Schmidt-Hebbel, 2001. "Un estudio del ahorro agregado por agentes económicos en Chile," Central Banking, Analysis, and Economic Policies Book Series, in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edit (ed.),Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 3, pages 49-82, Central Bank of Chile.
    4. Andrea Butelmann & Francisco Gallego, 2001. "Household Saving in Chile (1988 and 1997): Testing the Life Cycle Hypothesis," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 38(113), pages 3-48.
    5. Andrea Butelmann P & Francisco Gallego, 2000. "Household Saving in Chile: Microeconomic Evidence," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 3(1), pages 5-24, April.
    6. Andrea Butelmann P & Francisco Gallego, 2000. "Household Saving in Chile: Microeconomic Evidence," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 3(1), pages 5-24, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Chang-Tai Hsieh & Jonathan A. Parker, 2007. "Taxes and Growth in a Financially Underdeveloped Country: Evidence from the Chilean Investment Boom," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2007), pages 1-53, August.
    3. Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Effects of Tax-Based Saving Incentives On Saving and Wealth," NBER Working Papers 5759, National Bureau of Economic Research, Inc.
    4. Mauro Baranzini, 2005. "Modigliani's life-cycle theory of savings fifty years later," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 58(233-234), pages 109-172.
    5. Seng-Eun Choi, 2010. "Social Security and Household Saving in Korea: Evidence from the Household Income and Expenditure Survey," Korean Economic Review, Korean Economic Association, vol. 26, pages 97-119.
    6. Axel Börsch-Supan & Tabea Bucher-Koenen & Michela Coppola & Bettina Lamla, 2015. "Savings In Times Of Demographic Change: Lessons From The German Experience," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 807-829, September.
    7. Bernheim, B Douglas, 1991. "How Strong Are Bequest Motives? Evidence Based on Estimates of the Demand for Life Insurance and Annuities," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 899-927, October.
    8. Mauro Baranzini, 2005. "Modigliani's life-cycle theory of savings fifty years later," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 58(233-234), pages 109-172.
    9. Dimitris Hatzinikolaou & Agathi Tsoka, 2016. "Modeling and Estimating the Effects of Institutional Variables on a Pay-as-you-go Social Security System and on Household Saving," Public Finance Review, , vol. 44(5), pages 589-609, September.
    10. William G. Gale, 1998. "The Effects of Pensions on Household Wealth: A Reevaluation of Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 706-723, August.
    11. Ashok Thomas & Luca Spataro, 2013. "Pension funds and Market Efficiency: A review," Discussion Papers 2013/164, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    12. Jonathan Gruber & Aaron Yelowitz, 1999. "Public Health Insurance and Private Savings," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1249-1274, December.
    13. Erin Cottle Hunt & Frank N. Caliendo, 2022. "Social security and risk sharing: A survey of four decades of economic analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1591-1609, December.
    14. Ha van Dung, 2014. "Short-term precaution, insurance and saving mechanisms in rural Vietnam," Working Papers CIE 82, Paderborn University, CIE Center for International Economics.
    15. Kapteyn, Arie & Alessie, Rob & Lusardi, Annamaria, 2005. "Explaining the wealth holdings of different cohorts: Productivity growth and Social Security," European Economic Review, Elsevier, vol. 49(5), pages 1361-1391, July.
    16. Feng, Jin & He, Lixin & Sato, Hiroshi, 2009. "Public pension and household saving: evidence from China," BOFIT Discussion Papers 2/2009, Bank of Finland Institute for Emerging Economies (BOFIT).
    17. Olivia S. Mitchell & James F. Moore, "undated". "Retirement Wealth Accumulation and Decumulation: New Developments and Outstanding Opportunities," Pension Research Council Working Papers 97-8, Wharton School Pension Research Council, University of Pennsylvania.
    18. B. Douglas Bernheim, 1987. "Dissaving after Retirement: Testing the Pure Life Cycle Hypothesis," NBER Chapters, in: Issues in Pension Economics, pages 237-280, National Bureau of Economic Research, Inc.
    19. 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.
    20. Huggett, Mark & Ventura, Gustavo, 2000. "Understanding why high income households save more than low income households," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 361-397, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:1998-12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.