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The Impact of Superannuation on Household Saving

Author

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  • Ellis Connolly

    (Reserve Bank of Australia)

  • Marion Kohler

    (Reserve Bank of Australia)

Abstract

Over the last 20 years superannuation has grown to be the second largest component of household wealth in Australia after ownership of dwellings. This paper analyses the impact on household saving behaviour of the substantial rise in compulsory contributions to superannuation funds. Our analysis takes account of other macroeconomic developments that are likely to have had a strong influence on the household saving rate over this period, especially the financial deregulation of the 1980s and the unprecedented increase in the value of household wealth in the 1990s. We first illustrate the effect of superannuation on household saving in a small theoretical model, also taking account of the effect financial deregulation and capital gains might have on saving. In an empirical model of saving motivated by our theoretical analysis, we find evidence that only part of compulsory superannuation contributions has been offset by reductions in other saving, suggesting that – other things being equal – compulsory superannuation has indeed resulted in higher household saving.

Suggested Citation

  • Ellis Connolly & Marion Kohler, 2004. "The Impact of Superannuation on Household Saving," RBA Research Discussion Papers rdp2004-01, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2004-01
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    Cited by:

    1. Richard Eccleston, 2012. "Australia's Future Fund: a future beyond the GFC," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 17(2), pages 284-297.
    2. Yanotti, Maria Belen, 2013. "A review of the Australian mortgage market," Working Papers 2014-01, University of Tasmania, Tasmanian School of Business and Economics, revised 01 Aug 2013.
    3. Bank for International Settlements, 2007. "Institutional investors, global savings and asset allocation," CGFS Papers, Bank for International Settlements, number 27, december.
    4. George Kudrna & Alan D. Woodland, 2013. "Macroeconomic and Welfare Effects of the 2010 Changes to Mandatory Superannuation," The Economic Record, The Economic Society of Australia, vol. 89(287), pages 445-468, December.
    5. Garry F. Barrett & Yi-Ping Tseng, 2008. "Retirement Saving in Australia," Canadian Public Policy, University of Toronto Press, vol. 34(s1), pages 177-193, November.
    6. Paul Hiebert, 2006. "Household Saving and Asset Valuations in Selected Industrialised Countries," RBA Research Discussion Papers rdp2006-07, Reserve Bank of Australia.
    7. Anne-Marie Brook, 2014. "Options to Narrow New Zealand’s Saving – Investment Imbalance," Treasury Working Paper Series 14/17, New Zealand Treasury.
    8. James Obben & Monique Waayer, 2011. "New Zealand's old‐age pension scheme and household saving," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 38(9), pages 767-788, August.
    9. John Freebairn, 2007. "Some Policy Issues in Providing Retirement Incomes," Melbourne Institute Working Paper Series wp2007n06, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    10. Andrew Leigh, 2015. "How behavioural economics does and can shape public policy," The Economic and Labour Relations Review, , vol. 26(2), pages 339-346, June.

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    More about this item

    Keywords

    superannuation; household saving; offset coefficient;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G2 - Financial Economics - - Financial Institutions and Services

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