The Displacement Effects of Social Security Wealth in a Transition Economy. The Case of Poland

Economic theory does not give clear predictions on the impact of social security wealth on private wealth. While the basic life cycle hypothesis predicts full displacement, many theoretical contributions anticipate only a limited offset. The empirical research on the issue is also not conclusive. In this paper, we measure the substitution between social security wealth and private wealth in Poland. To obtain measures of long-term substitution we measure the impact of social security wealth on net wealth. Estimates of the impact on consumption and saving rate reflect short-term effects.Our results do not provide support for the hypothesis that social security wealth crowds out private savings in the long term. The short-term evidence is mixed, but the impact of the social security wealth on consumption is at best weak, while the impact on saving rates is not statistically significant. In our view in transition economies, the impact of social security wealth on private wealth is weaker than in developed economies, because the wealth distribution has been to large extent transformed by random and rapid events such as privatization of housing assets