Social security wealth and aggregate consumption: An extended life-cycle model estimated for The Netherlands

Summary In this paper a method is developed to calculate a wealth variable accounting for the existence of the basic old-age provisions in The Netherlands (AOW). In line with Feldstein's extended life-cycle model, consumption functions with (gross) social security wealth are estimated for The Netherlands for the period 1957–1986. The marginal propensity to consume social security wealth is statistically significant in the applied specifications. The data favour the use of an age- and period-dependent discount rate. The results compare relatively well with the consumption equations in the models of the Central Planning Bureau and De Nederlandsche Bank.this paper improved considerably thanks to comments of members of the Department of Macro-Economics (University of Amsterdam) and the anonymous referee(s) of this journal. Special thanks to Hans Amman for letting me write my own computer program!