Does social security reduce the accumulation of private wealth? Evidence from Italian survey data

The degree of substitution between public pensions and private wealth is tested relying on a constructed measure of social security benefits derived from households' self-reported expectations of replacement rates and retirement age. The data are drawn from the Italian Survey of Household Income and Wealth for the years 1989 and 1991. Each additional lira of pension wealth is estimated to reduce private wealth between 10 and 20%. This result is robust with respect to specification (linear or logarithmic), sample (one-income or two-income households) and assumptions regarding the discount factors used to compute social security wealth for both pre- and post-retirement years. The estimates suggest that the developments in the social security system in the 1970s and 1980s explain one-fifth of the fall in the Italian private saving rate.