The macroeconomic effect of mandatory savings

Abstract

There is great concern in the literature in understanding problems provoked by lower savings. At the individual level, some works investigate whether households (especially lower-income) save enough for their retirements. On the other hand, in a more aggregated approach, other works search about the impact of low investment on economic growth and interest rates. In order to enhance savings, several instruments were proposed. Among them, compulsory savings appears to be more effective due the presence of a commitment mechanism. This instrument is valued by people with self-control problems, since it can increase both savings and welfare. Nevertheless, the effects of mandatory savings are complex and poorly studied due to the potential crowding out of voluntary savings and their interaction with other social security systems. In order to fill this gap, we developed an overlapping generation economy with heterogeneous agents, incomplete markets, and a social security system. Our economy is calibrated according to the Brazilian experience with FGTS as a compulsory savings. Through some reforms that integrates the FGTS with other social security systems, our work will quantitatively evaluate the macroeconomic impacts of these regimes on variables such as aggregate savings, welfare and labor supply, considering both the long-term effects and the transition between the steady states. (AU)