In 1997 Chancellor Kohl proposed a major pension reform and pushed the law through Parliament explaining that the German PAYG system had become unsustainable. One limitation of the new law---one that is crucial for our identification strategy---is that it left the generous pension entitlements of civil servants intact. The year after, in 1998, Kohl lost the elections and was replaced by Gerhard Shroeder. One of the first decisions of the new Chancellor was to revoke the 1997 pension reform. We use the quasi-experiment of the adoption and subsequent revocation of the pension reform to study how households reacted to the increase in uncertainty about the future path of income that such an event produced. Our estimates are obtained from a diff-in-diff estimator: this helps us overcome the identification problem that often affects measures of precautionary saving. Departing from the majority of studies on precautionary saving we also analyze households' response in terms of labour market choices: we find evidence of a labour supply response by those workers who can use the margin offered by part-time employment.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
6766.
Find related papers by JEL classification: E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
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Börsch-Supan, Axel & Reil-Held, Anette & Rodepeter, Ralf & Schnabel, Reinhold & Winter, Joachim, 2000.
"The German Savings Puzzle,"
Sonderforschungsbereich 504 Publications
01-07, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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Borsch-Supan, Axel & Reil-Held, Anette & Rodepeter, Ralf & Schnabel, Reinhold & Winter, Joachim, 2001.
"The German Savings Puzzle,"
Research in Economics,
Elsevier, vol. 55(1), pages 15-38, March.
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