Download This PaperMandatory Pension Savings and Long-run Debt Accumulation: Evidence from Danish Low-wage Earners
49 Pages Posted: 30 Mar 2020 Last revised: 4 Feb 2021
Date Written: February 4, 2021
Abstract
This paper uses two decades of Danish register data at the individual level to show that a 1-dollar increase in pension wealth leads to a 42-cent rise in total debt for a group of low-wage earners. Collective bargaining in the labor market provides time-sector variation in mandatory pension contribution rates, which we exploit in two empirical research designs; an event study and a cross sectional IV-regression model. Both methods demonstrate that the debt rise is accompanied by increased housing wealth and homeownership rates. Together, the empirical evidence indicates that mandatory pension contributions lead to a signi cant increase in net wealth, as well as in gross debt.
Keywords: Crowding-out, Mandatory pensions, Household debt, Mortgages
JEL Classification: D15, E21, H31
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