PENSION DESIGN WITH A LARGE INFORMAL LABOR MARKET: EVIDENCE FROM CHILE
Clement Joubert
International Economic Review, 2015, vol. 56, issue 2, 673-694
Abstract:
This article investigates the fiscal and welfare trade‐offs involved in designing a pension system when workers can avoid contributing by working informally. Using a life‐cycle model of labor supply and saving decisions, I structurally estimate preferences and earnings opportunities in the formal and informal sectors using data on Chilean households. I find limited support for formal jobs rationing. Instead, mandatory pension contributions significantly encourage informality. Policy experiments show that Chile could lower minimum pension spending by 23%—while guaranteeing the same income to retirees—if the minimum pension's implicit tax rate was increased to 60%.
Date: 2015
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https://doi.org/10.1111/iere.12118
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Persistent link: https://EconPapers.repec.org/RePEc:wly:iecrev:v:56:y:2015:i:2:p:673-694
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