The portfolio effect of pension reforms: evidence from Italy

We estimate the portfolio effect of changes in social security wealth exploiting a decade of Italian pension reforms. The Italian Survey of Household Income and Wealth records detailed portfolio data and elicits expectations of retirement outcomes, thus allowing us to measure expected social security wealth and assess to what extent Italian households perceive the innovations brought about by the reforms. We find that households have responded to cuts in pension benefits mostly by increasing real estate wealth, and that this response is stronger among households able more accurately to estimate future social security benefits. We also compute that for the average household consumable wealth increases by 40 percent of the reduction in social security wealth.