A microeconometric investigation of social security and saving behavior in the life cycle hypothesis

The social security system has been the subject of much debate in recent years. A major controversy was centered on whether or not the existence of social security has altered personal saving behavior. Theoretical answers to this question have been couched in terms of how individuals make decisions about consumption and saving.;The life cycle hypothesis will be adopted as the framework for analyzing the impact of social security on saving. This does not imply acceptance of the life cycle hypothesis (nor rejection of the infinite-lifetime hypothesis) as a valid explanation of household behavior; the choice is merely one of convenience.;The empirical evidence in this thesis indicates that the anticipation of future social security benefits does increase current consumption, but that this effect may be mitigated by the payroll taxes used to finance social security benefits.;In this thesis, I will combine historical information with cross-sectional data to estimate a household consumption function to investigate the social security-saving relationship. Although a large body of empirical literature exists in this area, the results as regard the effect of social security on saving are inconclusive. In addition, many of these studies make use of inappropriate data or base results on regression equations containing flawed explanatory variables.