saving. In this sense, the two surveys are mutually consistent. It is well possible that
the SHIW understates ‘‘true’’ consumption and therefore overstates savings at
some ages. This bias is likely to be more severe for the upper tail of the saving distribu-
tion. Whether the difference between the two survey measures of saving depends
on sample composition, survey design, or other effects is the topic for future
research.
4.8 CONCLUSIONS
We use Italian micro-level data to construct several measures of saving: the relevant
measures are based on a ‘‘residual’’ definition (income minus consumption), whereas
in some cases we look at saving as the difference in wealth levels at two different
points in time. We have available a large cross-sectional sample of Italian households
for a number of years; this sample also contains a small panel component, which we
exploit to look at financial saving and real saving. We also propose a non-standard
definition of saving based on the notion of ‘‘earned income’’ and we refer to this as
‘‘mandatory saving’’ to accompany the traditional definition of saving based on
disposable income (called discretionary saving). In our study the former is a
definition of saving that takes account of both social security contributions and
contributions to a severance pay fund and it stresses the importance of ‘‘saving for
FIGURE 4.14 Comparing ISTAT and SHIW median expenditures, income, and saving (thousands
of 1998 euro). The figures plot consumption, income, and discretionary saving in the 1991 ISTAT
survey and in the 1991 SHIW survey. The fitted lines are obtained by a regression on a third-order age
polynomial. All values are expressed in thousands of euro.
4.8 Conclusions 143
retirement’’ through mandated arrangements. In line with the work of Jappelli and
Modigliani (1998), the novelty of this approach is that when using earned income
we also account for the benefits paid out to retirees from these retirement provisions
and treat them as a form of ‘‘mandatory dissaving’’. The reason for resorting to this
non-standard measure of saving, which we present along with the traditional
measure of private savings, is simply to stress the importance of the institutional
setting for old-age insur ance in measuring saving. We argue that in Italy a large
fraction of household resources is mandated to public pensions. Thus, whatever the
potential substitutability between the two forms of wealth, the desire to accumulate
resources for consumption in old age must be reduced for Italian consumers. For the
same reason also, the life-cycle pattern of mandatory saving is crucial to the
understanding of the dynamic of discretionary saving.
By making assumptions on the relationship between age effects, cohort effects,
and time effects, w hich typically affect saving choices, we are able to estimate
cohort-adjusted age profiles for the two definitions of saving. The cohort
adjustment proved very important in our data, particularly for older generations,
hence suggesting that differences in cohorts cannot be neglected when explaining
saving behavior.
We show that discretionary saving is positive at all ages. Similar patterns arise
when we consider a number of household characteristics, such as education and
employment of the head of the household, family composition, and homeowner-
ship. For all these groups, discretionary saving does not fall below zero, except for
non-homeowners at very old ages. This means that families hold a positive amount
of private wealth until the end of the life cycle and there might be a combination of
different motives for private wealth holdings. For example, private wealth is be-
queathable and the fact that non-homeowners decumulate more than homeo wners
suggests that bequest motives may play a role. Other potentia l explanations are
related to risk exposure or transaction costs. Whereas pension arrangements insure
against longevity risk and the national health system (essentially based on universal
coverage) partially insures against health risks, there might be other risks late in life or
transaction costs may be more severe. For example, elderly people may be
particularly concerned with permanent illness and disability and long-term care.
Hence, for Italian households, there seems to emerge some substitutability
between private wealth and pension wealth, but also different degrees of fungibility:
whereas pension wealth finances consumption during retirement, private wealth
may be used for intergenerational transfers and to cover other contingencies at very
old ages.
ACKNOWLEDGMENT
This paper is part of a research project on ‘‘Structural Analysis of Household Savings and Wealth
Positions over the Life Cycle.’’ The Training and Mobility of Researchers Network Program (TMR)
144 Chapter 4 Household Saving Behavior and Pension Policies in Italy

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