From Bismarck to Beveridge: The Other Pension Reform in Spain

40 Pages Posted: 22 Jul 2014

See all articles by J. Ignacio Conde-Ruiz

J. Ignacio Conde-Ruiz

Foundation for Applied Economic Research (FEDEA)

Clara I. Gonzalez

Banco de España

Date Written: July 22, 2014

Abstract

Aging is an unstoppable process and it remains a major challenge for the sustainability of the PAYG pension system in most developed countries, including in Spain. Many countries need to introduce reforms of their pension systems in order to control their expenditure, and in some cases this has already begun. However, there are other sorts of changes to certain parameters that are perceived as secondary, e.g. the different path of minimum and maximum pensions, and the upper and lower caps on contributions. This has significant implications for the distributive structure of the social security system that cannot be readily perceived by the population. That is why some economists in Spain refer to it as the "Silent Reform". The aim of this paper is to analyse the consequences this type of reform would have in Spain; indeed, it is the first paper to actually quantify and evaluate the potential impact it would have on the country. We have used an accounting model with heterogeneous agents and overlapping generations in order to project pension expenditures up until 2070. The results show that this kind of reform could potentially contain future expenditure and could also change the nature of the pension system from a contributory or Bismarckian-type system into an assistential or Beveridgean-type one. This change could have significant consequences as both systems have different objectives. The paper also shows that the institutional characteristics that make this kind of reform in Spain feasible are also present in most developed countries with Bismarckian pension systems. Therefore, we believe that the lessons learned in this paper on this kind of reform could well prove useful to other countries.

Keywords: aging population, pension reform, Beveridgean type, Bismarckian type, accounting projection model, overlapping generations

JEL Classification: H55, J11, J26

Suggested Citation

Conde-Ruiz, J. Ignacio and Gonzalez, Clara I., From Bismarck to Beveridge: The Other Pension Reform in Spain (July 22, 2014). Banco de Espana Working Paper No. 1417. Available at SSRN: https://ssrn.com/abstract=2469659 or http://dx.doi.org/10.2139/ssrn.2469659

J. Ignacio Conde-Ruiz (Contact Author)

Foundation for Applied Economic Research (FEDEA) ( email )

Jorge Juan 46
Madrid, 28001
Spain
+34 91 435 9020 (Phone)
+34 91 577 9575 (Fax)

Clara I. Gonzalez

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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