The Displacement Effect of Public Pensions on the Accumulation of Financial Assets

29 Pages Posted: 21 Nov 2009

See all articles by Michael D. Hurd

Michael D. Hurd

RAND Corporation; State University of New York at Stony Brook - College of Arts and Science - Department of Economics; National Bureau of Economic Research (NBER)

Pierre-Carl Michaud

RAND Corporation; IZA Institute of Labor Economics

Susann Rohwedder

RAND Corporation

Date Written: September 1, 2009

Abstract

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 as whether or not public pensions crowd out private savings. This paper uses international micro-datasets collected over recent years to investigate whether public pensions displace private savings. The identification strategy relies on differences in the progressivity or non-linearity of pension formulas across countries. We also make use of large heterogeneity in earnings across education group and country. The evidence we present is consistent with previous studies using cross-sectional and time-series variation in savings and pensions. We estimate that an extra dollar of pension wealth depresses accumulated financial assets at the time of retirement by 23 to 44 cents and that an extra ten thousand dollars in pension wealth reduces the average retirement age by roughly 1 month.

Suggested Citation

Hurd, Michael D. and Michaud, Pierre-Carl and Rohwedder, Susann, The Displacement Effect of Public Pensions on the Accumulation of Financial Assets (September 1, 2009). Michigan Retirement Research Center Research Paper No. WP 2009-212. Available at SSRN: https://ssrn.com/abstract=1510296 or http://dx.doi.org/10.2139/ssrn.1510296

Michael D. Hurd (Contact Author)

RAND Corporation ( email )

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State University of New York at Stony Brook - College of Arts and Science - Department of Economics ( email )

Stony Brook, NY 11794
United States

National Bureau of Economic Research (NBER)

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Pierre-Carl Michaud

RAND Corporation ( email )

1776 Main Street
Santa Monica, CA 90407-2138
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IZA Institute of Labor Economics

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Bonn, D-53072
Germany

Susann Rohwedder

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

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