Portfolio Allocation in the Face of a Means-Tested Public Pension

39 Pages Posted: 20 Oct 2009

See all articles by Deborah A. Cobb-Clark

Deborah A. Cobb-Clark

School of Economics, University of Sydney; IZA Institute of Labor Economics

Vincent A. Hildebrand

York University - Department of Economics; CEPS/INSTEAD

Abstract

Is there evidence that households adjust their asset portfolios just prior to retirement in response to a means-tested public pension? We address this question by estimating a system of asset equations constrained to add up to net worth. We find little evidence that in 2006 healthy households or couples responded to the incentives embedded in the means test determining pension eligibility by reallocating their assets. While there are some significant differences in asset portfolios associated with being near the income threshold, being of pensionable age, and being in poor health these differences are often only marginally significant, are not robust across time, and are not clearly consistent with the incentives inherent in the pension eligibility rules. In 2006, any behavioral response to the means test seems to occur among single pensioners in poor health. Comparison with 2002 results suggests the incentives to reallocate assets may have weakened over time.

Keywords: asset portfolios, means testing, public pension, household wealth

JEL Classification: H30, H31, D31

Suggested Citation

Cobb-Clark, Deborah A. and Hildebrand, Vincent Alexandre, Portfolio Allocation in the Face of a Means-Tested Public Pension. IZA Discussion Paper No. 4481, Available at SSRN: https://ssrn.com/abstract=1490503 or http://dx.doi.org/10.2139/ssrn.1490503

Deborah A. Cobb-Clark (Contact Author)

School of Economics, University of Sydney ( email )

606 Social Sciences Bldg. (A02)
The University of Sydney
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Australia
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IZA Institute of Labor Economics

P.O. Box 7240
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Germany

Vincent Alexandre Hildebrand

York University - Department of Economics ( email )

363 York Hall
Glendon College
Toronto, Ontario, M4N 3M6
Canada
416-736-2100 x 88591 (Phone)
416-487-6852 (Fax)

CEPS/INSTEAD ( email )

B.P.48
Differdange, L-4620
Luxembourg

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