Working Paper: NBER ID: w23506
Authors: 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.
Keywords: Social Security; Private Savings; Life Insurance
JEL Codes: D14; H31; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social security (H55) | private savings (D14) |
| social security (H55) | retirement delay (J26) |
| social security benefits (H55) | private savings (D14) |
| tax changes (H26) | private savings (D14) |
| life insurance value adjustments (G52) | private savings (D14) |
| 1977 reform (E69) | private savings (D14) |
| 1983 reform (P21) | private savings (D14) |
| 1983 payroll tax increase (E65) | private savings (D14) |