Social Security, Government Finance, and Savings

JEFFREY CARMICHAEL*, KIM HAWTREY

*Corresponding author for this work

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This paper considers the impact of social security and the government financing mix on saving behaviour and aggregate economic activity. The theoretical argument for the neutrality of these actions is shown to have validity only if we consider the economy as behaving like a composite individual. Particular individuals do not face the same marginal rates of substitution and transformation as the hypothetical composite, due to corner solutions, illusions, and important distribution effects. Empirically, neutrality for the whole economy depends on the relative strengths of the offsetting forces faced by the individuals. Our findings with Australian data suggest that neither the level of aged pensions, nor the government financing mix, have substantial real effects on aggregate saving behaviour.

Original languageEnglish
Pages (from-to)332-343
Number of pages12
JournalEconomic Record
Volume57
Issue number4
DOIs
Publication statusPublished - 1981

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