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Intergenerational Risk Sharing and the Effects of Social Security Reforms

Intergenerational Risk Sharing and the Effects of Social Security Reforms. Lee Lockwood Northwestern University & NBER and Day Manoli UT-Austin & NBER Joint Conference of the Retirement Research Consortium August 2-3, 2012, Washington , D.C.

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Intergenerational Risk Sharing and the Effects of Social Security Reforms

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  1. Intergenerational Risk Sharing and the Effects of Social Security Reforms Lee Lockwood Northwestern University & NBER and Day Manoli UT-Austin & NBER Joint Conference of the Retirement Research Consortium August 2-3, 2012, Washington, D.C.

  2. Do household transfers respond to public pension reforms? • Many public pension programs face shortfalls • Importance • Distributional consequences • Effects of pensions on saving • Intergenerational links and informal risk-sharing

  3. This paper • Analyze consumption and transfers in Italy in early 1990s • Pension and tax reforms and recession reduced the wealth of younger cohorts relative to older ones • Estimate combined effect of many factors

  4. Relation to literature • Literature focuses on households directly affected by reforms • E.g., Attanasio and Brugiavini 2003 • Our main interest is indirect effects • Major challenge: confounding factors

  5. Italy in 1992-1993 • Major reform of public pension program • Pension expenditures  15% of GDP • Reform cut 1/4 of liabilities • Other major reforms • Currency crisis and major recession

  6. Analysis • Estimate effects of reforms and recession on income and consumption of different cohorts • Use regressions to construct counterfactual outcomes post-1992 • Compare counterfactual outcomes to actual outcomes to measure shocks, risk sharing • Estimate effects on transfers

  7. Income

  8. Income

  9. Income shortfall (predicted – actual)

  10. Consumption • Didincome shortfalls translate directly into consumption?

  11. Consumption

  12. Consumption shortfall(predicted – actual)

  13. Summary: Income & Consumption • Risk-sharing very incomplete • Working-age cohorts: large consumption shortfalls • Retirement-age cohorts: little if any shortfall

  14. Risk-sharing mechanisms • Co-residence / household size • Transfers

  15. Household size

  16. Transfers: “other income”

  17. Conclusion • Little evidence of intergenerational risk-sharing • Further research needed to address confounding factors and mechanisms

  18. Income

  19. Consumption

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