Submitted September 2010.
The Displacement Effect of Public Pensions on the Accumulation of Financial Assets*
Article first published online: 7 MAR 2012
© 2012 The Authors Fiscal Studies © 2012 Institute for Fiscal Studies
Volume 33, Issue 1, pages 107–128, March 2012
How to Cite
Hurd, M., Michaud, P.-C. and Rohwedder, S. (2012), The Displacement Effect of Public Pensions on the Accumulation of Financial Assets. Fiscal Studies, 33: 107–128. doi: 10.1111/j.1475-5890.2012.00154.x
- Issue published online: 7 MAR 2012
- Article first published online: 7 MAR 2012
- social security;
- international comparisons
The generosity of public pensions may depress private savings and provide incentives to retire early. While there is plenty of evidence supporting the latter effect, there remains considerable controversy over whether public pensions crowd out private savings. This paper uses international micro-data sets collected over recent years to investigate whether public pensions displace private savings. The identification strategy relies not only on cross-country differences in generosity but also on differences in the progressivity or non-linearity of pension formulas across countries. We estimate that an extra dollar of pension wealth depresses accumulated financial assets around the time of retirement by 22 cents. An extra 10,000 dollars in public pension wealth reduces the average retirement age by roughly one month, which implies an elasticity of years of retirement with respect to pension wealth of 0.15.