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Social Security and Saving: A Comment

Coates, Dennis and Humphreys, Brad R.


We check the robustness of Feldstein’s finding that Social Security reduces private saving to two specifications not considered before in the literature: (1) constraining the coefficients on Social Security and household net worth to be equal; and (2) allowing the effect of wealth on consumption to be nonlinear or a function of the age distribution of the population. We reject Feldstein’s implicit assumption of linear but unequal effects of wealth on consumption, finding instead that the effects of both forms of wealth on consumption have risen over the postwar era. Only in recent years has the estimated effect of Social Security wealth on consumption for some of these specifications been close to Feldstein’s estimate of 2.9 cents per dollar of wealth.


Coates, Dennis and Humphreys, Brad R. (1999), Social Security and Saving: A Comment, National Tax Journal, 52:2, pp. 261-68