Abstract
The article describes the German–Austrian building and loan associations (Bausparkassen) and compares the rate of return on an investment in the Bausparkassen system with the capital market interest rate. The article shows that the rate of return on the former never exceeds the interest rate and that we can usually expect it to fall short of the interest rate. The article discusses the question of whether it is welfare increasing to abolish the subsidization of savings in Bausparkassen, which is widespread not only in Germany and Austria but also in some East European countries that have adopted the system. We show that welfare gains from abolishing distortions caused by the subsidies are expected. No welfare gains occur, however, if the Bausparkassen system disbands as a consequence of the abolition of the subsidies.J. Comp. Econom., June 2000, 28(2), pp. 340–363. University of Munich and CESifo, Schackstrasse 4, 80539 Munich, Germany
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