An econometric analysis of the effect of social security on the level of national savings, evidence from selected countries worldwide

Social security is a popular government program that is implemented in most countries around the world. Being able to maintain a sustainable social security system is valuable for the economy. It is important to understand how the system affects savings, since savings is positively related to growth in the economy. Given the importance of the social security program, it is therefore imperative to understand the complexities of the program and how it influences national saving. The team became aware of the significance of understanding and determining the effect of the social security system on the level of savings. A study by Tracey Rochelle suggests that social security spending only depresses saving in countries with high saving rates. This signifies that the effect of social security on saving varies from country to country, depending on their saving rates. In this study, the team aims to determine the impact of social security on the level of national savings in selected developed and developing countries worldwide. Furthermore, this study aspires to achieve the objectives, which are (1) Determine the correlation between the social security expenditures and savings, (2) Determine the correlation of other economic variables and savings, and (3) Differentiate the effect of social security to national savings rate among various income groups. The study was estimated using the Generalized Least Squares, Random Effects model. Results reveal that social security is indeed a significant determinant of national saving. Specifically, the aggregate effect of social security on national savings is negative. When the effect is separated for the four income groups, those who are significantly and negatively affected are the low-middle income, upper-middle income, and high-income group. The low-income group\u27s national savings rate is not significantly affected by the social security. For the income groups where social security is a significant determinant of national savings, it is to be noted that the negative effect of social security is larger in low middle income countries, and this negative effect decreases as a country belongs to a higher income group. These interesting results show that in an aggregate economy point of view, it seems that social security is detrimental to society as it depresses savings, especially in low-middle income countries. The reason behind this negative relationship is further explained by focusing on the role of the government. In effect, these findings have strong policy implications for the government