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The Impact of Retirement Benefits on Consumption and Saving in South Africa

Vasco Nhabinde and Nicolaas Schoeman ()
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Vasco Nhabinde: Department of Economics, University of Pretoria

No 200807, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper we empirically analyse the impact of retirement benefits on consumption and personal saving in South Africa using the Feldstein 1974 specification and procedure. By using a basic extended Ando-Modigliani life cycle model we show that the introduction of retirement programs crowds out discretionary household saving and consumption of contributors to such programs. There against, benefits paid by these programs contribute positively to consumption with a concomitant decline in the national pool of savings. However, taxes on retirement benefits affect the discounted value thereof and any change in such tax policy would therefore affect the saving behaviour of contributors in the opposite direction of the tax policy. We use time series data on consumption per capita, disposable labour-income per capita and pension and benefit payments from provident funds both public and privately managed. Using OLS, we find that estimates of retirement benefits are robust when regressed with the per capita government deficit and per capita durable consumption. The estimates are also stable when regressed with the full Barro specification (which includes the per capita government deficit, per capita durable consumption expenditure and the product of unemployment and per capita disposable income).

Keywords: Social Security; Pension Funds; Retirement; Taxes; Consumption; Saving; South Africa; Gender; Productivity (search for similar items in EconPapers)
JEL-codes: H H5 H55 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2008-05
New Economics Papers: this item is included in nep-afr, nep-age and nep-dev
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