The Effect of Social Security on Saving

31 Pages Posted: 15 Feb 2001 Last revised: 24 Feb 2002

See all articles by Martin S. Feldstein

Martin S. Feldstein

National Bureau of Economic Research (NBER) (deceased); Harvard University (deceased)

Date Written: April 1979

Abstract

This paper, which was presented as the 1979 Frank Paish Lecture to the British Association of University Teachers of Economics, provides a non-technical summary of the recent studies of the effects of social security on private saving. The first section discusses the theoretical indeterminacy of the effect of social security while the second part reviews the empirical studies. Although the traditional life cycle theory of saving clearly implies that the anticipation of social security benefits reduces private saving, a richer theoretical framework suggests several reasons why the saving response cannot be unambiguously established by theoretical reasoning. These reasons include the indirect effects of social security on retirement behavior, private pensions, and gifts and bequests. The econometric studies resolve this uncertainty and indicate that social security appears to reduce private saving substantially. These studies include(1) aggregate time series evidence on the U.S. saving rates over the past 50 years, (2) microeconomic evidence on the accumulation of wealth by a large sample of individual households, and (3) international comparisons of saving rates in major industrial countries.

Suggested Citation

Feldstein, Martin S., The Effect of Social Security on Saving (April 1979). NBER Working Paper No. w0334, Available at SSRN: https://ssrn.com/abstract=260512

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