National saving and social security in Italy

We have recently suggested that net government transfers have substantially contributed to the decline of the aggregate Italian saving rate. Changes in social security laws and regulations which took place in the late 1960s and early 1970s apparently weakened the link between contributions and benefits permitting a time path of aggregate consumption in excess of what would have occurred in the absence of such changes. In this paper, these results are revised and extended and, if anything, strengthened: slightly less than half the reduction in the private “equilibrium” saving rate observed over the last 30 years appears to be due to the increase of social security wealth. The paper also assesses the likely impact of the 1992 social security reform and suggests that in the long run the impact might be sizeable accounting for up to a 3 points higher saving ratio.