Does mandatory saving crowd out voluntary saving?

Svend E. Hougaard Jensen, Sigurdur P. Olafsson, Arnaldur Stefansson, Thorsteinn S. Sveinsson and Gylfi Zoega

Economics from Department of Economics, Central bank of Iceland

Abstract: Recently, mandatory pension contributions in Iceland were increased substantially in the private sector while remaining unchanged in the public sector. Taking this as a large natural experiment, this paper studies the effects of this change on households’ voluntary saving using comprehensive third-party reported information on tax-payers’ income, assets and debt for all taxpayers. Using difference-in-differences, we find that households do not reduce voluntary saving when faced with a rise in mandatory saving. Our results are confirmed by an event study of workers switching from the private sector to the public sector. Survey evidence suggests widespread ignorance about the pension system.

JEL-codes: E21 E24 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-age and nep-eur
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