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Intergenerational Risk Sharing and the Effects of Social Security Reforms Lee Lockwood Northwestern University & NBER and Day Manoli UT-Austin & NBER Joint.

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Presentation on theme: "Intergenerational Risk Sharing and the Effects of Social Security Reforms Lee Lockwood Northwestern University & NBER and Day Manoli UT-Austin & NBER Joint."— Presentation transcript:

1 Intergenerational Risk Sharing and the Effects of Social Security Reforms Lee Lockwood Northwestern University & NBER and Day Manoli UT-Austin & NBER Joint Conference of the Retirement Research Consortium August 2-3, 2012, Washington, D.C.

2 Do household transfers respond to public pension reforms? Many public pension programs face shortfalls Importance – Distributional consequences – Effects of pensions on saving – Intergenerational links and informal risk-sharing

3 This paper Analyze consumption and transfers in Italy in early 1990s – Pension and tax reforms and recession reduced the wealth of younger cohorts relative to older ones Estimate combined effect of many factors

4 Relation to literature Literature focuses on households directly affected by reforms – E.g., Attanasio and Brugiavini 2003 Our main interest is indirect effects – Major challenge: confounding factors

5 Italy in Major reform of public pension program – Pension expenditures  15% of GDP – Reform cut 1/4 of liabilities Other major reforms Currency crisis and major recession

6 Analysis Estimate effects of reforms and recession on income and consumption of different cohorts – Use regressions to construct counterfactual outcomes post-1992 – Compare counterfactual outcomes to actual outcomes to measure shocks, risk sharing Estimate effects on transfers

7 Income

8

9 Income shortfall (predicted – actual)

10 Consumption Did income shortfalls translate directly into consumption?

11 Consumption

12 Consumption shortfall (predicted – actual)

13 Summary: Income & Consumption Risk-sharing very incomplete – Working-age cohorts: large consumption shortfalls – Retirement-age cohorts: little if any shortfall

14 Risk-sharing mechanisms Co-residence / household size Transfers

15 Household size

16 Transfers: “other income”

17 Conclusion Little evidence of intergenerational risk- sharing Further research needed to address confounding factors and mechanisms

18 Income

19 Consumption


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