Intergenerational Risk Sharing and the Effects of Social Security Reforms

Lee Lockwood, Day Manoli

NBER Retirement Research Center Paper No. NB 12-17
Issued in September 2012

With increasing pressure for social security reform in many countries, it is important to understand the extent to which families share risk across generations in an effort to offset the effects social security reforms. In particular, understanding the degree of this intergenerational risk sharing is critical for evaluating the distributional consequences of potential social security reforms that reduce benefits of future retirees. We address this topic using data from the Bank of Italy's Survey of Household Income and Wealth and variation from multiple pension reforms in Italy that reduced social security wealth of young workers while leaving benefits for existing retirees largely unchanged. The results indicate relatively little intergenerational risk sharing, though the empirical analysis is confounded by other adverse macroeconomic events and policy changes in the 1990s that may have differentially affected younger and older individuals. Further research on changes in specific intergenerational risk sharing mechanisms following social security reforms may yield valuable policy-relevant insights.

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