Description:
Public pensions can be positive for income redistribution, but lower incentives for private savings. Estimating a life cycle model with the Expenditures Survey I find that households consume a significant fraction of their noncontributory pension wealth, implying a tradeoff between improving public pensions and increasing savings. Counterfactual simulations show that the two pension withdrawals of 2020 may decrease the future savings rate by 0.7%. Furthermore, policy reforms may decrease the aggregate savings rate by 0.3% for each percentage point of solidarity rate tax from current workers. The solidarity taxes increase substantially the pension income of poor retirees, but their effects decline over time