Research

Abstract: In May 1981, Chile became the first country to address the unsustainability of its pay-as-you-go Social Security program by reforming to a system of individual retirement accounts. In order to quantify the welfare impact of the Chilean reform, I use an overlapping generations model with three main components: multiple productivity types, a government policy modeled on the Chilean system, and a household decision to split working time between a taxed formal sector, an untaxed informal sector, and home production. Low-productivity workers, who pay lower payroll taxes but receive lower pensions prior to the reform, and high-productivity workers, who pay higher taxes and receive more generous pensions, experience long-run welfare gains of roughly 15 and 25 percent, respectively. Transitional generations of both types experience welfare losses up to 10 percent. These losses are driven by the structure of the transitional policy used to move between the programs. 



Minimum Pensions and Social Security Privatization: Analysis of the 2008 Chilean Reform

Abstract: When retirement consumption is funded by personal savings through a privatized mandatory savings program, the government must address how to provide retirement consumption to agents who arrive at retirement with low accumulated savings or exhaust their savings prior to death. While low savings can occur for many reasons, maximizing welfare gains from the privatization of the Social Security system includes a method to address financing retirement for these agents. Chile moved from a pay-as-you-go Social Security system to a program of individual, private, retirement accounts in 1981. In 2008, then, the Chilean government implemented an additional reform to its pension system which focused on amending minimum pensions for those agents without sufficient private savings. In this paper, I use an overlapping generations model with age and productivity heterogeneity, a government policy modeled on the Chilean system, and a household decision to split working time between a taxed formal sector, and un-taxed informal sector, and home production. I use Chilean data to discipline the model and study how the level and system of the minimum guaranteed pension affects the welfare impact of Social Security privatization.


Incentives for Early Retirement and Social Security Reform Proposals in Brazil


Abstract: Many countries are currently dealing with how to fund retirement consumption for retirees as populations age. The issue of funding retirement for workers is made more difficult as workers spend more time in retirement due to increasing lifespans or choices for early retirement. In Brazil, the structure of the current pension system provides generous pensions, even if workers choose early retirement. Therefore, the government faces a large burden of providing pensions for an extended period of time. In this paper, I use the case of Brazil to quantify the welfare impact of Social Security reform proposals in an economy with high incentives to retire young. I use an overlapping generations model with age and productivity heterogeneity; a household decision to split working time between a taxed formal sector, and un-taxed informal sector, and home production; and a choice of retirement age to address this question. I use the model to study proposals of reforms to the current Brazilian Social Security system.