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dc.titleCalculating the Redistributive Impact of Pension Systems in LAC
dc.contributor.authorAltamirano Montoya, Álvaro
dc.contributor.authorOliveri, María Laura
dc.contributor.authorBosch, Mariano
dc.contributor.authorTapia Troncoso, Waldo
dc.contributor.orgunitVice Presidency for Sectors and Knowledge
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.coverageLatin America and the Caribbean
dc.date.available2023-10-27T00:10:00
dc.date.issue2023-10-27T00:10:00
dc.description.abstractThis paper examines the implicit subsidies within pension systems across Latin America and the Caribbean (LAC) region. We first calculate the theoretical benefits of pension for hypothetical workers in 25 countries in LAC. We show that, on average, LAC's pension systems are subsidized, as they provide pensions above what workers would have obtained by investing pension contributions in a safe asset. Similarly, pension systems are designed to be progressive by offering higher replacement rates (pensions relative to earnings) for low-income workers. Despite this progressivity, in some countries, absolute subsidies could be higher for high-income workers. This occurs because the cost of one percentage point of the replacement increases with the average pension. Second, using data from social protection surveys, we estimate the incidence of pension systems in five LAC countries. We show that, on average, all five systems provide important subsidies to those workers who obtain a pension. However, given the high levels of informal work, in some countries, those subsidies are highly concentrated among high-income workers. Variation is large across countries. The three highest labor income deciles concentrate 70-95% of all subsidies in defined benefit systems such as Paraguay and Colombia. In defined contribution systems, subsidies are much more progressive, but still, because low-income workers do not qualify for minimum pensions, between 50-60% of subsidies concentrate in the high-income deciles. Countries like Chile, with explicit subsidies targeted at the bottom of the income distribution, obtain a more progressive distribution of subsidies. Because of relatively low participation rates, women have a weaker link with the pension system. They are also less likely to benefit from implicit subsidies. Finally, we show that non-contributory pensions, if well-targeted, largely improve the redistributive properties of pension systems in LAC.
dc.format.extent43
dc.identifier.doihttp://dx.doi.org/10.18235/0005231
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Calculating-the-redistributive-impact-of-pension-systems-in-LAC.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.relation.seriesLatin America and Caribbean Inequality Review
dc.subjectPension Systems
dc.subjectLabor Force
dc.subjectSubsidy
dc.subjectReplacement Rate
dc.subjectIncome Distribution
dc.subjectWomen
dc.subjectWage
dc.subjectPopulation Aging
dc.subject.jelcodeH55 - Social Security and Public Pensions
dc.subject.jelcodeJ11 - Demographic Trends, Macroeconomic Effects, and Forecasts
dc.subject.jelcodeJ14 - Economics of the Elderly • Economics of the Handicapped • Non-Labor Market Discrimination
dc.subject.jelcodeJ18 - Public Policy
dc.subject.jelcodeJ26 - Retirement • Retirement Policies
dc.subject.jelcodeJ32 - Nonwage Labor Costs and Benefits • Retirement Plans • Private Pensions
dc.subject.keywordspensions;subsidies;taxes;Latin America
dc.typeWorking Papers
idb.identifier.pubnumberIDB-WP-01532
idb.operationRG-T3609
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