Do government benefits for high income retirees encourage saving?
The Australian government provides benefits to high income older people, which are intended to induce saving for retirement. It has not been established whether this unusual policy is effective. Using an illustrative two-period model, it is shown that these benefits may induce some people to save and work more, but they may have the opposite effect on other, more affluent, people. The magnitude and direction of the net effect on private saving remains an open empirical question. The policy may have increased Commonwealth government expenditure on relatively affluent older people and reduced state government expenditure on people with slightly less resources.