The Effect of Releasing SP Funds on private Spending
In March 2009, the Danish Government decided to give households access to withdraw the so‐called Special Pension funds (SP) in the period 1 June – 31 December 2009. The purpose is to stimulate household sector consumption and thereby to boost aggregate economic activity. The objective of the proposed study is to answer the following question: To what extent did releasing the SP funds lead to increased private spending, increased free savings, reduction in private debt, or increased private pension contributions? The SP scheme was introduced in 1998, and required all wage earners to pay 1 percent of their salary to a personal account, the balance of which would be paid out at retirement. Payments to the scheme were suspended from 2004. The total amount of SP funds by 1 March 2009 is about 43 billion DKK, corresponding to about 5.1 percent of total private consumption expenditure,1 and this is the maximum potential direct stimulus effect to the economy. Around 3.2 million individuals have savings on an SP account and the average amount per individual is 15,100 DKK, and each individual will have to decide whether to withdraw all the funds from the account or to do nothing. As will be explained in more detail below, this is a unique experiment in that it allows us both to estimate key policy parameters of interest for designing Danish economic policy as well as to contribute to the research literature on consumer behavior within the life‐cycle framework.