The Life-Cycle Effects of Pension Reforms: A Structural Approach

CSEF Working Papers 585

99 Pages Posted: 10 Feb 2021 Last revised: 23 Dec 2022

See all articles by Claudio Daminato

Claudio Daminato

Lund University; ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Mario Padula

University "Ca' Foscari" of Venice; CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Date Written: October 15, 2020

Abstract

To assess the life-cycle welfare effects of pension reforms, we provide a dynamic stochastic model of saving, portfolio choice and retirement with a pension system that operates according to the notional defined contribution principle.

Relying on the exogenous variation from a sequence of Italian pension reforms, we identify and estimate the model, which is then used to draw implications of alternative pension policies. The validated model predicts substantial social security wealth effects on retirement, with retirement decisions shaping the degree of substitution between public pension wealth and private savings. We further find important life-cycle effects of pension reforms, with households' welfare decreasing more the later in the working life they face the reform, for a given variation in pension rules. Our findings have implications for the design of future pension policies and their political sustainability.

Keywords: Pension reforms, Life-Cycle, Savings, Portfolio Choice, Retirement

JEL Classification: D15, E21, H31, H55, J26

Suggested Citation

Daminato, Claudio and Padula, Mario, The Life-Cycle Effects of Pension Reforms: A Structural Approach (October 15, 2020). CSEF Working Papers 585, Available at SSRN: https://ssrn.com/abstract=3744012 or http://dx.doi.org/10.2139/ssrn.3744012

Claudio Daminato (Contact Author)

Lund University ( email )

Box 117
Lund, SC Skane S221 00
Sweden

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Mario Padula

University "Ca' Foscari" of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy
+390412349181 (Phone)
+390412349176 (Fax)

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

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