Documento de Trabajo Nº 47: The effect of the Chilean Pension Reform on Wealth Accumulation

We investigate the extent to which households substitute this increase by decreasing accumulation of other wealth. As the decision to either stay in the old system or to opt-out to the new one was not random, we follow an instrumental variable approach that allow us to overcome the unobserved heterogeneity problem. Using data from the Social Protection Survey we find two suitable instruments that we apply to two different subsamples. The displacement effect between expected pension wealth and non-pension wealth is estimated to be in the range of 30%. Among the possible reasons for the incomplete offset are imperfect information, the desire to compensate for new risks faced and habit formation.