The Effects of Social Security Privatization on Household Saving: Evidence from the Chilean Experience

Board of Governors of the Federal Reserve System Finance and Economics Discussion Series 98-12

34 Pages Posted: 6 May 1998

See all articles by Julia Lynn Coronado

Julia Lynn Coronado

Federal Reserve Board - Division of Research and Statistics

Date Written: February 12, 1998

Abstract

In recent years, a handful of countries have converted the financing of their social security systems from pay-as-you-go (PAYGO) to partial or full funding. Privatization is viewed as one way to insulate social security from the political and demographic pressures that currently threaten the financial stability of PAYGO systems. However, privatization would improve a nation's situation only if such a reform increases domestic saving. In this paper I use evidence from Chile, where social security was privatized in 1981, to assess the impact of such a reform on household saving rates. I find that the reform provided a significant stimulus for saving among higher income households, increasing their saving rates by more than seven percentage points. This increase in saving at the household level translates into an increase in national saving of more than two percent of GDP.

JEL Classification: H55, H31

Suggested Citation

Coronado, Julia Lynn, The Effects of Social Security Privatization on Household Saving: Evidence from the Chilean Experience (February 12, 1998). Board of Governors of the Federal Reserve System Finance and Economics Discussion Series 98-12, Available at SSRN: https://ssrn.com/abstract=84028 or http://dx.doi.org/10.2139/ssrn.84028

Julia Lynn Coronado (Contact Author)

Federal Reserve Board - Division of Research and Statistics ( email )

Washington, DC 20551
United States
202-452-3044 (Phone)
202-872-4927 (Fax)

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