NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Pascal Maenhout

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

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January 2001Investing Retirement Wealth: A Life-Cycle Model
with John Y. Campbell, João F. Cocco, Francisco J. Gomes
in Risk Aspects of Investment-Based Social Security Reform, John Y. Campbell and Martin Feldstein, editors
March 1999Investing Retirement Wealth: A Life-Cycle Model
with John Y. Campbell, Joao F. Cocco, Francisco J. Gomes: w7029
If household portfolios are constrained by borrowing and short-sales restrictions asset markets, then alternative retirement savings systems may affect household welfare by relaxing these constraints. This paper uses a calibrated partial-equilibrium model of optimal life-cycle portfolio choice to explore the empirical relevance of these issues. In a benchmark case, we find ex-ante welfare gains equivalent to a 3.7% increase in consumption from the investment of half of retirement wealth in the equity market. The main channel through which these gains are realized is that the higher average return on equities permits a lower Social Security tax rate on younger households, which helps households smooth their consumption over the life cycle. There is a smaller welfare gain of 0.5% of cons...

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