During the past decades, debate has been focused on whether or not the United States Social Security program(OASI) has depressed private saving in the economy. In the context of concern about low levels of saving and capital formation and the consequent impact on productivity growth and output, the issue is clearly important. In a pioneer article, Martin Feldstein(1974) estimated that the introduction of the Social Security System had reduced personal saving in the United States by 50 percent. Subsequent empirical studies presented estimates both supporting and contradicting Feldstein´s conclusion. The debate is still inconclusive.
Recently, Feldstein(1996) reexamined the results of his 1974 paper on Social Security and saving. His new estimates imply that the Social Security program currently reduces overall private saving by nearly 60 percent in the aggregate. While his estimation is based on the traditional life cycle model that includes the SSW(Social Security Wealth) variable as the constructed variable, the SSW variable is included as the linear form in the model. However, the estimated value of the SSW might be sensitive on the functional form when the SSW variable enters the consumer expenditure form.
Remembering that Feldstein´s estimation results could be sensitive to functional form, the non-parametric methodology, which is model specification free, was used to estimate the SSW variable. Semi-parametric estimation shows that the current U.S. Social Security program has reduced overall private saving by between 6.9 and 13.45 percent in the aggregate. This result doesn´t strongly support Feldstein´s(1996). It is noted, however, that this result is not robust in that the estimated values are sensitive to the optimal bandwidth.
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