Working Paper: NBER ID: w1363
Authors: R. Glenn Hubbard
Abstract: Attempts to measure the impacts of pensions on household saving have occupied much of the literature in empirical public finance over the past decade. The emphasis here is on the annuity insurance aspects of social security and pensions. A simple life-cycle model is put forth to show that even anactuarially fair, fully funded social security system can reduce individual saving by more than the tax paid. Hence, previous partial equilibrium estimates of the impact of social security on saving drawn solely from consideration of the intergenerational wealth transfer at the introduction of the system are, if anything too small. The large partial equilibrium effects are mitigated when initial endowments are considered. To the extent that the introduction of social security reduces the size of unplanned bequests, its net effect on the consumption of subsequent generations is diminished. The final sections of the paper extend the approach to private pensions and address empirical issues. Using a model specification for individual wealth accumulation from the literature, potential offsets are interpreted according to the presence or absence of a bequest motive and according to the ability of individuals to adjust their participation in private pensions to counteract involuntary changes in social security.
Keywords: pensions; household saving; social security; intertemporal consumption; bequests
JEL Codes: H55; D91; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Social Security (H55) | Individual Saving (D14) |
| Introduction of Social Security (H55) | Reduction in Unplanned Bequests (D14) |
| Reduction in Unplanned Bequests (D14) | Diminished Consumption Effects for Subsequent Generations (D15) |