Working Paper: NBER ID: w0579
Authors: Martin Feldstein
Abstract: In a 1974 paper in the Journal of Political Economy I discussed the theoretical ambiguity of the effect of social security on private saving and presented statistical evidence that social security does on balance depress saving. Recently, an error was detected in the computer program that was used to construct the "social security wealth" variable. I have now corrected that error and re estimated the original consumer expenditure equation. I have also updated the analysis by including the five years of additional data that have become available since the original study was completed. The new estimates, presented in the current note, continue to indicate that social security substantially depresses private saving. The point estimates of this effect are somewhat lower than before but nevertheless simply that social security depresses saving by about fifty percent of its current value. The estimated reduction in saving is more than two-thirds of the concurrent "contributions" of employees and employers to the social security retirement and survivors fund.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Social Security Wealth (H55) | Private Saving (D14) |
| Wealth Replacement Effect (E21) | Private Saving (D14) |
| Induced Retirement Effect (J26) | Consumption Financing (E21) |
| Social Security Wealth (H55) | Reduction in Private Saving (E21) |
| Social Security Wealth Contributions (H55) | Reduction in Private Saving (E21) |
| Corrected Estimate of Social Security Wealth (H55) | Reduction in Private Saving (E21) |
| Social Security Wealth (1976) (H55) | Reduction in Personal Saving (D14) |