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Modelling Private Wealth Accumulation and Spend-down in the Italian Microsimulation Model CAPP_DYN: A Life-Cycle Approach

Author

Listed:
  • Carlo Mazzaferro

    ()

  • Marcello Morciano

    ()

  • Elena Pisano
  • Simone Tedeschi

    ()

Abstract

In microsimulation literature a limited number of models are provided with a module aimed at analyzing and projecting the evolution of private wealth over time. However, this issue appears crucial in order to get a comprehensive evaluation of the likely distributional effects of institutional reforms adopted to cope with population ageing. In this work we describe the implementation in the Italian dynamic micro simulation model CAPP_DYN of a new module in which household’s savings and asset allocation are modelled. In particular, our efforts are addressed at accounting for some possible behavioural responses to pension reforms in household savings. To this end, we rely on an approximate life cycle structural framework for estimating saving behaviour, while adopting the traditional stochastic micro simulation approach for assets allocation. In line with Ando and Nicoletti Altimari (2004), we emphasize the role of lifetime economic resources in households’ consumption decisions, yet we further account for internal habit formation and subjective expectations on pension outcomes in the econometric stage. In addition, we model intergenerational transfers of private wealth in a probabilistic fashion. Despite possible saving responses to pension reforms, simulated results for the period 2008-2050 suggest a rising dispersion in saving propensity and intergenerational transfers received are largely responsible for the predicted increase in disposable income inequality in the next decades which, differently from the recent past, will also affect the group of elderly.

Suggested Citation

  • Carlo Mazzaferro & Marcello Morciano & Elena Pisano & Simone Tedeschi, 2010. "Modelling Private Wealth Accumulation and Spend-down in the Italian Microsimulation Model CAPP_DYN: A Life-Cycle Approach," Center for the Analysis of Public Policies (CAPP) 0073, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi", revised Nov 2010.
  • Handle: RePEc:mod:cappmo:0073
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    References listed on IDEAS

    as
    1. Tullio Jappelli & Franco Modigliani, 2006. "The Age–Saving Profile and the Life-Cycle Hypothesis," Chapters,in: Long-run Growth and Short-run Stabilization, chapter 2 Edward Elgar Publishing.
    2. John Laitner & Dan Silverman, 2005. "Estimating Life-Cycle Parameters from Consumption Behavior at Retirement," NBER Working Papers 11163, National Bureau of Economic Research, Inc.
    3. Michael D. Hurd & Susann Rohwedder, 2008. "The Retirement Consumption Puzzle: Actual Spending Change in Panel Data," NBER Working Papers 13929, National Bureau of Economic Research, Inc.
    4. Giovanni D'Alessio & Ivan Faiella, 2002. "Non-response behaviour in the Bank of Italy�s Survey of Household Income and Wealth," Temi di discussione (Economic working papers) 462, Bank of Italy, Economic Research and International Relations Area.
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    More about this item

    Keywords

    household consumption; habit formation; pension expectations; social security; intergenerational transfers; income and wealth distribution; microsimulation;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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