regression.<sup>12</sup> That is to say, the J curve in the share of contributors in Chile is not different to that in any other reforming country in the years following the introduction of individual retirement accounts. The J curve is shown in Figure 6, as a plot of the fixed effects coefficients on the years-since-reform polynomials.

The signs and significance of the coefficients in both random and fixed effects regressions are robust to changes in the model. For example, since the IRA variable is equal to zero in countries without a system of individual accounts, I was concerned that it might act as a dummy variable for countries that have reformed, rather than measure the degree of the shift to individual accounts between one reformer and another. I included a reform dummy as a control, but this only increased the significance of the coefficients on the IRA and social security tax variables. Since the reform dummy captures little additional information, and in order to preserve degrees of freedom, I dropped the variable from the regressions. Additionally, concerned that these results might be driven by double counting of contributors in reforming countries with parallel PAYGO systems, I dropped observations from Colombia - where because workers can switch between regimes every three years, the danger of double counting is highest - and re-ran the regressions, removing the other reforming countries from the panel one by one. The sign and significance of the estimated coefficients remained robust to these changes. Keeping in mind the weakness of the Hausman specification test, the fixed effects regression is preferred. 13 Turning back to the hypotheses in Section III, these results are summarized as answers to the questions raised. Does the size of the total pay-roll tax for social security lower the number of contributors in the workforce? The negative and significant coefficient on the social security tax variable suggests so. Fiorito and Padrini (2001) arrive at similar results in an analysis of labor taxes in developed economies. Does the portion of pay-roll tax for social security accumulating in an individual retirement account increase the number of contributors? The greater the portion of payroll deductions that accumulates in an individual retirement account, the larger the share of contributors in the work force. Finally, is there evidence of transition dynamics in the number of contributors to social security in the years after a reform? Our results suggest that the drop in contributors in the first years after a new system is introduced - that may reflect uncertainty arising from sudden, dramatic change in the "rules of the game" - is followed by a gradual rise, as agents become familiar with the new retirement security instrument. Evidence of a similar "uncertainty" effect inhibiting workers from saving in the new individual retirement accounts, is found by Barr and Packard (2000). The size of the estimated coefficients suggest that the positive effect on the number of contributors in the work force from the share of the payroll tax accumulating in an individual retirement account, is greater than the dynamic effects in the years after reform.

> 12 Random effects, X2(3) = 0.77, Prob. > _2_ = 0.8559; fixed effects, F (3, 238) = 0.44, Prob > F = 0.728 13 I would like to thank Steve Bond at Nuffield College for pointing out the flaws in the Hausman specification test.

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