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Does mandatory saving crowd out voluntary saving?

Author

Listed:
  • Svend E. Hougaard Jensen
  • Sigurdur P. Olafsson
  • Arnaldur Stefansson
  • Thorsteinn S. Sveinsson
  • Gylfi Zoega

Abstract

Recently, mandatory pension contributions in Iceland were increased substantially in the private sector while remaining unchanged in the public sector. Taking this as a large natural experiment, this paper studies the effects of this change on households’ voluntary saving using comprehensive third-party reported information on tax-payers’ income, assets and debt for all taxpayers. Using difference-in-differences, we find that households do not reduce voluntary saving when faced with a rise in mandatory saving. Our results are confirmed by an event study of workers switching from the private sector to the public sector. Survey evidence suggests widespread ignorance about the pension system.

Suggested Citation

  • Svend E. Hougaard Jensen & Sigurdur P. Olafsson & Arnaldur Stefansson & Thorsteinn S. Sveinsson & Gylfi Zoega, 2023. "Does mandatory saving crowd out voluntary saving?," Economics wp92, Department of Economics, Central bank of Iceland.
    • Handle: RePEc:ice:wpaper:wp92
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    File URL: https://www.cb.is/library/Skraarsafn---EN/Working-Papers/Working%20Paper_no_92.pdf
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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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