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Published byImogene Cross Modified over 8 years ago
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SSIAs Special Savings Incentive Accounts Special Savings Incentive Accounts Entry window 1/5/01-30/4/02 Entry window 1/5/01-30/4/02 Mature between May 2006 and April 2007 Mature between May 2006 and April 2007 Save up to a monthly limit of €254 Save up to a monthly limit of €254 Government top-up of 25% Government top-up of 25%
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Aims of SSIA Scheme Increase savings rate and thereby dampen consumer spending Increase savings rate and thereby dampen consumer spending Launched at a time of high inflation Launched at a time of high inflation Promote savings behaviour Promote savings behaviour Concerns about underprovision for retirement Concerns about underprovision for retirement
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Effect on Savings Rate Income versus Substitution effects Income versus Substitution effects Higher income higher consumption Higher income higher consumption Higher returns to savings lower consumption Higher returns to savings lower consumption Savings instruments are fungible Savings instruments are fungible “Consumption smoothing” “Consumption smoothing”
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Consumption smoothing Roughly 1.2 million accounts opened Roughly 1.2 million accounts opened About €15 billion in SSIA when they mature between May 2006 and April 2007 About €15 billion in SSIA when they mature between May 2006 and April 2007 Average payout €13,800 Average payout €13,800 Concerns that the “release” of €15 billion will fuel consumer price inflation Concerns that the “release” of €15 billion will fuel consumer price inflation
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Consumption smoothing Households have convex preferences Households have convex preferences Prefer averages rather than extremes Prefer averages rather than extremes Example: Example: U = log C t + log C t+1 Budget constraint C t + C t+1 = Y Maximize utility by letting C t = C t+1 = ½Y
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Consumption smoothing Amount released from SSIAs is relatively highly forecastable Amount released from SSIAs is relatively highly forecastable Government top-up to SSIAs represents temporary boost to income Government top-up to SSIAs represents temporary boost to income no spike in C Why might C spike? Why might C spike? Durable goods and liquidity constraints Durable goods and liquidity constraints
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