Keywords: Social security, privatization, household saving
Abstract: In recent years, a handful of countries have converted the financing of their
social security systems from pay-as-you-go (PAYGO) to partial or full funding.
Privatization is viewed as one way to insulate social security from the
political and demographic pressures that currently threaten the financial
stability of PAYGO systems. However, privatization would improve a nation's
situation only if such a reform increases domestic saving. In this paper I
use evidence from Chile, where social security was privatized in 1981, to
assess the impact of such a reform on household saving rates. I find that the
reform provided a significant stimulus for saving among higher income
households, increasing their saving rates by more than seven percentage points.
This increase in saving at the household level translates into an increase in
national saving of more than two percent of GDP.
Full paper (1577 KB PDF)
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Last update: March 26, 1998