Pension Reform and Fiscal Policy: Some Lessons from Chile

26 Pages Posted: 31 Jan 2012

See all articles by Ángel Melguizo

Ángel Melguizo

AT&T Latin America

Ángel Muñoz

Fundación BBVA - Pension and Insurance

David Tuesta

BBVA Research

Joaquín Vial

Fundación BBVA - Pension and Insurance

Date Written: March 26, 2009

Abstract

In this paper we analyze the short and medium term fiscal costs stemming from structural pension reform, taking Chile as workhorse. The Chilean pension system, based on individual capital accounts managed by the private sector, has been in operation for almost 30 years, providing a rich evidence of the impact of pension systems on public accounts. Besides, a recent reform that crucially changes the solidarity pillar is being implemented now. In the paper we argue that although much lower than its benefits, fiscal transition costs tend to be high and persistent, so a fiscal consolidation prior to the reform is advisable. This also allows filling the coverage holes that labor market informality generates, as illustrated for Chile, Colombia, Mexico and Peru. Finally, in more general terms, the exportability of this type of pension reform depends not only on its specific design, but on the quality of market and public institutions.

Keywords: pension reform, implicit debt, fiscal costs, solidarity pillar, minimum pension, Chile

JEL Classification: E62, H55, H68

Suggested Citation

Melguizo, Ángel and Muñoz, Ángel and Tuesta, David Alfredo and Vial, Joaquín, Pension Reform and Fiscal Policy: Some Lessons from Chile (March 26, 2009). Available at SSRN: https://ssrn.com/abstract=1993119 or http://dx.doi.org/10.2139/ssrn.1993119

Ángel Melguizo

AT&T Latin America ( email )

379 Campus Drive
Somerset, NJ 08873
United States

Ángel Muñoz (Contact Author)

Fundación BBVA - Pension and Insurance ( email )

Spain

David Alfredo Tuesta

BBVA Research ( email )

Paseo de Recoletos, 10
Madrid
Spain

Joaquín Vial

Fundación BBVA - Pension and Insurance

Spain

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