IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/23506.html
   My bibliography  Save this paper

Social Security and Saving: An Update

Author

Listed:
  • Sita Slavov
  • Devon Gorry
  • Aspen Gorry
  • Frank N. Caliendo

Abstract

Typical neoclassical life-cycle models predict that Social Security has a large and negative effect on private savings. We review this theoretical literature by constructing a model where individuals face uninsurable longevity risk and differ by wage earnings, while Social Security provides benefits as a life annuity with higher replacement rates for the poor. We use the model to generate numerical examples that confirm the standard result. Using several benefit and tax changes from the 1970s and 1980s as natural experiments, we investigate the empirical relationship between Social Security and private savings and find little to support the strong predictions from the theoretical model. We explore possible reasons for the divergence between theoretical predictions and empirical findings.

Suggested Citation

  • Sita Slavov & Devon Gorry & Aspen Gorry & Frank N. Caliendo, 2017. "Social Security and Saving: An Update," NBER Working Papers 23506, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23506
    Note: AG PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w23506.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Emma Aguila, 2011. "Personal Retirement Accounts and Saving," American Economic Journal: Economic Policy, American Economic Association, vol. 3(4), pages 1-24, November.
    2. Bernheim, B Douglas & Levin, Lawrence, 1989. "Social Security and Personal Saving: An Analysis of Expectations," American Economic Review, American Economic Association, vol. 79(2), pages 97-102, May.
    3. 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.
    4. Orazio P. Attanasio & Agar Brugiavini, 2003. "Social Security and Households' Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 1075-1119.
    5. Sagiri Kitao, 2014. "Sustainable Social Security: Four Options," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 756-779, October.
    6. Orazio P. Attanasio & Susann Rohwedder, 2003. "Pension Wealth and Household Saving: Evidence from Pension Reforms in the United Kingdom," American Economic Review, American Economic Association, vol. 93(5), pages 1499-1521, December.
    7. Bagchi, Shantanu, 2016. "Is The Social Security Crisis Really As Bad As We Think?," Macroeconomic Dynamics, Cambridge University Press, vol. 20(3), pages 737-776, April.
    8. Jonathan A. Parker, 2000. "Spendthrift in America? On Two Decades of Decline in the US Saving Rate," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 317-387, National Bureau of Economic Research, Inc.
    9. Hong, Jay H. & Rios-Rull, Jose-Victor, 2007. "Social security, life insurance and annuities for families," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 118-140, January.
    10. Jeffrey B. Liebman & Erzo F. P. Luttmer, 2015. "Would People Behave Differently If They Better Understood Social Security? Evidence from a Field Experiment," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 275-299, February.
    11. Juan C. Conesa & Carlos Garriga, 2008. "Optimal Fiscal Policy In The Design Of Social Security Reforms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 291-318, February.
    12. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(2), pages 137-150.
    13. David M. Blau, 2016. "Pensions, household saving, and welfare: A dynamic analysis of crowd out," Quantitative Economics, Econometric Society, vol. 7(1), pages 193-224, March.
    14. Feng, Jin & He, Lixin & Sato, Hiroshi, 2011. "Public pension and household saving: Evidence from urban China," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 470-485.
    15. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-926, Sept./Oct.
    16. van der Wiel, Karen, 2008. "Preparing for Policy Changes: Social Security Expectations and Pension Scheme Participation," IZA Discussion Papers 3623, Institute of Labor Economics (IZA).
    17. Caliendo, Frank N. & Gorry, Aspen & Slavov, Sita, 2019. "The cost of uncertainty about the timing of Social Security reform," European Economic Review, Elsevier, vol. 118(C), pages 101-125.
    18. Alonso-Ortiz, Jorge, 2014. "Social security and retirement across the OECD," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 300-316.
    19. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
    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.
    21. 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.
    22. Feldstein, Martin, 1996. "Social Security and Saving: New Time Series Evidence," National Tax Journal, National Tax Association;National Tax Journal, vol. 49(2), pages 151-164, June.
    23. 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.
    24. 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.
    25. Roozbeh Hosseini, 2015. "Adverse Selection in the Annuity Market and the Role for Social Security," Journal of Political Economy, University of Chicago Press, vol. 123(4), pages 941-984.
    26. 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 606-629, June.
    27. Feldstein, Martin, 1996. "Social Security and Saving: New Time Series Evidence," National Tax Journal, National Tax Association, vol. 49(2), pages 151-64, June.
    28. John B. Shoven & Sita N. Slavov, 2006. "Political Risk Versus Market Risk in Social Security," NBER Working Papers 12135, National Bureau of Economic Research, Inc.
    29. Feldstein, Martin & Pellechio, Anthony, 1979. "Social Security and Household Wealth Accumulation: New Microeconometric Evidence," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 361-368, August.
    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. José Luis Iparraguirre, 2020. "Economics and Ageing," Springer Books, Springer, number 978-3-030-29019-1, December.
    2. Eytan Sheshinski & Frank N. Caliendo, 2021. "Social Security and the increasing longevity gap," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(1), pages 29-52, February.
    3. Laura D. Quinby & Geoffrey Sanzenbacher, 2021. "Do Public Sector Workers Increase Their Outside Savings in Response to Pension Cuts?," Boston College Working Papers in Economics 1023, Boston College Department of Economics.
    4. Erin Cottle Hunt & Frank N. Caliendo, 2020. "Social Security reform: three Rawlsian options," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1582-1607, December.
    5. Yue Li, 2018. "Economic Analysis Of Social Security Survivors Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(4), pages 2043-2073, November.
    6. 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.

    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. 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.
    2. Bissonnette, L. & van Soest, A.H.O., 2010. "Retirement Expectations, Preferences, and Decisions," Other publications TiSEM 45e93b08-cc1d-47c6-ba06-d, Tilburg University, School of Economics and Management.
    3. 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.
    4. Tzu-Ting Yang, 2016. "The Effect of Workplace Pensions on Household Saving: Evidence from a Natural Experiment in Taiwan," IEAS Working Paper : academic research 16-A013, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    5. Esteban García-Miralles & Jonathan M. Leganza, 2024. "Public Pensions and Private Savings," American Economic Journal: Economic Policy, American Economic Association, vol. 16(2), pages 366-405, May.
    6. 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.
    7. Eytan Sheshinski & Frank N. Caliendo, 2021. "Social Security and the increasing longevity gap," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(1), pages 29-52, February.
    8. Marta Lachowska & Michał Myck, 2018. "The Effect of Public Pension Wealth on Saving and Expenditure," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 284-308, August.
    9. Erin Cottle Hunt & Frank N. Caliendo, 2023. "Social security and risk sharing: the role of economic mobility across generations," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1374-1407, October.
    10. 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.
    11. Gary V. Engelhardt & Anil Kumar, 2011. "Pensions and Household Wealth Accumulation," Journal of Human Resources, University of Wisconsin Press, vol. 46(1), pages 203-236.
    12. Richard Disney, 2005. "Household Saving Rates and the Design of Social Security Programmes: Evidence from a Country Panel," CESifo Working Paper Series 1541, CESifo.
    13. José Luis Iparraguirre, 2020. "Economics and Ageing," Springer Books, Springer, number 978-3-030-29019-1, December.
    14. Xiaoyu Deng & Jing Tian & Rong Chen, 2019. "Effect of Social Security System on Consumption through Income and Uncertainty: Evidence from China," Sustainability, MDPI, vol. 11(7), pages 1-16, March.
    15. Peter van Santen, 2019. "Uncertain Pension Income and Household Saving," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(4), pages 908-929, December.
    16. Blau, David M., 2011. "Pensions, Household Saving, and Welfare: A Dynamic Analysis," IZA Discussion Papers 5554, Institute of Labor Economics (IZA).
    17. Mathieu Lefebvre & Sergio Perelman, 2016. "Social security wealth and household asset holdings: new evidence from Belgium," Working Papers of BETA 2016-38, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    18. Madeira, Carlos, 2022. "The impact of the Chilean pension withdrawals during the Covid pandemic on the future savings rate," Journal of International Money and Finance, Elsevier, vol. 126(C).
    19. Alessie, R.J.M. & Angelini, V. & van Santen, P.C., 2012. "Pension wealth and household savings in Europe," Research Report 12012-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    20. Erin Cottle Hunt & Frank N. Caliendo, 2020. "Social Security reform: three Rawlsian options," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1582-1607, December.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:nbr:nberwo:23506. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.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.