The crowding-out effect of mandatory labour market pension schemes on private savings: Evidence from renters in Denmark

  • Mikkel Barslund Mikkel Barslund
  • Søren Arnberg Søren Arnberg

We estimate the crowding-out effect of the Danish mandatory labour market pension reforms begun in 1993 on the level of total household savings for renters. The effect is identified via a large panel of individual administrative records utilising the differencesin speed, timing and sectoral coverage of the implementation of the reform in the period 1997 to 2005. We find little substitutability between current mandatory labour market pension savings and private voluntary savings. Each euro paid into mandatory labour market pension accounts results in a reduction in private savings ofapproximately 0 to 30 cents, depending on age. This low rate of substitution is only, to a minor extent, explained by liquidity constraints. The results point to mandatory pension savings having a large effect on total household savings. Thus, pension reforms that introduce mandatory saving have macroeconomic implications.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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