Public Sector Pension Policies and Capital Accumulation in An Emerging Economy: The Case of Brazil

30 Pages Posted: 25 Jun 2009 Last revised: 14 Apr 2013

See all articles by Gerhard Glomm

Gerhard Glomm

Indiana University Bloomington - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Juergen Jung

Towson University - Department of Economics

Changmin Lee

Hanyang University - Seoul Campus

Chung Tran

Australian National University (ANU) - School of Economics

Date Written: June 24, 2009

Abstract

In many emerging economies such as Brazil, pension programs of public sector workers are more generous than pension programs of private sector workers. The opportunity costs of running generous public pension schemes for civil servants are potentially large in emerging economies that often suffer from low public investments in education and infrastructure. In this paper, we develop a two-sector dynamic general equilibrium framework to quantify these opportunity cost effects. We find that the efficiency and welfare gains of reallocating government resources from non-productive public sector pensions to productive public education and infrastructure investments are larger than the welfare effects created by classic public pension reforms that simply reduce savings and tax distortions by making pensions less generous. Calculating transitions to the post-reform steady state, we find that welfare losses for the generation born before the reform are offset by welfare gains by the generations born after the reform.

Keywords: Social Security Reform, Generous Public Sector Pensions, Capital Accumulation, Public Education and Infrastructure Investments

JEL Classification: E62, H41, H55

Suggested Citation

Glomm, Gerhard and Jung, Juergen and Lee, Changmin and Tran, Chung, Public Sector Pension Policies and Capital Accumulation in An Emerging Economy: The Case of Brazil (June 24, 2009). UNSW Australian School of Business Research Paper No. 2009 ECON 10, Available at SSRN: https://ssrn.com/abstract=1425265 or http://dx.doi.org/10.2139/ssrn.1425265

Gerhard Glomm

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States
812-855-7256 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Juergen Jung

Towson University - Department of Economics ( email )

Baltimore, MD
United States
812-345-9182 (Phone)

HOME PAGE: http://https://juejung.github.io/

Changmin Lee

Hanyang University - Seoul Campus ( email )

17 Haegdang-dong
Seongdong-ku
Seoul, 133-791

Chung Tran (Contact Author)

Australian National University (ANU) - School of Economics ( email )

Arndt Building 25B
Canberra, Australian Capital Territory 0200
Australia

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