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Inter-Generational Risk Sharing: Effects of Pension Reforms in Italy

This paper analyzes intergenerational risk sharing in Italy in the early 1990s following pension and tax reforms and a major recession. It examines how the changes affected household transfers, consumption, and income, highlighting the incomplete nature of risk-sharing mechanisms. The study compares predicted and actual outcomes to measure shocks and explores the impact on different age cohorts. The findings suggest limited intergenerational risk sharing and emphasize the need for further research to understand confounding factors and mechanisms.

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Inter-Generational Risk Sharing: Effects of Pension Reforms in Italy

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  1. Intergenerational Risk Sharing and the Effects of Social Security Reforms Lee Lockwood Northwestern University & NBER and Day Manoli UT-Austin & NBER Joint Conference of the Retirement Research Consortium August 2-3, 2012, Washington, D.C.

  2. Do household transfers respond to public pension reforms? • Many public pension programs face shortfalls • Importance • Distributional consequences • Effects of pensions on saving • Intergenerational links and informal risk-sharing

  3. This paper • Analyze consumption and transfers in Italy in early 1990s • Pension and tax reforms and recession reduced the wealth of younger cohorts relative to older ones • Estimate combined effect of many factors

  4. Relation to literature • Literature focuses on households directly affected by reforms • E.g., Attanasio and Brugiavini 2003 • Our main interest is indirect effects • Major challenge: confounding factors

  5. Italy in 1992-1993 • Major reform of public pension program • Pension expenditures  15% of GDP • Reform cut 1/4 of liabilities • Other major reforms • Currency crisis and major recession

  6. Analysis • Estimate effects of reforms and recession on income and consumption of different cohorts • Use regressions to construct counterfactual outcomes post-1992 • Compare counterfactual outcomes to actual outcomes to measure shocks, risk sharing • Estimate effects on transfers

  7. Income

  8. Income

  9. Income shortfall (predicted – actual)

  10. Consumption • Didincome shortfalls translate directly into consumption?

  11. Consumption

  12. Consumption shortfall(predicted – actual)

  13. Summary: Income & Consumption • Risk-sharing very incomplete • Working-age cohorts: large consumption shortfalls • Retirement-age cohorts: little if any shortfall

  14. Risk-sharing mechanisms • Co-residence / household size • Transfers

  15. Household size

  16. Transfers: “other income”

  17. Conclusion • Little evidence of intergenerational risk-sharing • Further research needed to address confounding factors and mechanisms

  18. Income

  19. Consumption

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