IMF Working Papers

Pension Reform Options in Chile: Some Tradeoffs

By Marika Santoro

March 13, 2017

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Marika Santoro. Pension Reform Options in Chile: Some Tradeoffs, (USA: International Monetary Fund, 2017) accessed October 6, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In this paper, we study the macroeconomic impact of pension reform options in Chile, using a dynamic general equilibrium model. The main reform proposal considers raising contributions (employer side) and vehicle additional proceeds to individual accounts and to increase the support of solidarity pensions. We model increased contributions as a labor tax. We find the impact of this reform on GDP to be negative in the near to the medium run, with GDP declining by 0.5 percent by 2021, as a result of labor tax distortions which lead to a fall in labor supply, investment and to a loss in competitiveness. We also illustrate the main macroeconomics tradeoffs by analyzing alternative reforms, such as using revenues only to improve future pensions or a reform package funded by a mix of higher contributions and indirect taxes.

Subject: Aging, Consumption, Expenditure, Labor, National accounts, Pension reform, Pension spending, Pensions, Population and demographics

Keywords: Adjustment cost, Aging, Asia and Pacific, Consumption, Consumption goods, Consumption rate, Consumption tax increase, Contribution rate, Global, Labor cost wedge, Liquidity-constrained household, Macroeconomic analysis, Open economy, Pension reform, Pension reforms, Pension spending, Pensions, Reform proposal, Replacement rate, Savings, Utility function, World GDP, WP

Publication Details

  • Pages:

    21

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2017/053

  • Stock No:

    WPIEA2017053

  • ISBN:

    9781475586206

  • ISSN:

    1018-5941

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