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

9. Income shortfall (predicted – actual)

10. Consumption Did income 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