Introducing an Austrian Backpack in Spain

Julián Díaz-Saavedra, João Brogueira de Sousa and Ramon Marimon
Authors registered in the RePEc Author Service: Julián Díaz-Saavedra

No 1332, Working Papers from Barcelona School of Economics

Abstract: In an overlapping generations economy with incomplete insurance markets, the introduction of an employment fund -akin to the one introduced in Austria in 2003, also known as `Austrian backpack'- can enhance production efficiency and social welfare. It complements the two classical systems of public insurance: pay-as-you-go (PAYG) pensions and unemployment insurance (UI). We show this in a calibrated dynamic general equilibrium model with heterogeneous agents of the Spanish economy in 2018. A `backpack' (BP) employment fund is an individual (across jobs) transferable fund, which earns a market interest rate as a return and is financed with a payroll tax (a BP tax). The worker can use the fund while unemployed or retired. Upon retirement, backpack savings can be converted into an (actuarially fair) retirement pension. To complement the existing PAYG pension and UI systems with a welfare maximising 6% BP tax would raise welfare by 0.96% of average consumption at the new steady state, if we model Spain as an open economy. As a closed economy, there are important general equilibrium effects and, as a result, the social value of introducing the backpack is substantially greater: 16.14%, with a BP tax of 18%. In both economies, the annuity retirement option is an important component of the welfare gains.

Keywords: Retirement; computable general equilibrium; welfare state; social security reform (search for similar items in EconPapers)
JEL-codes: C68 H55 J26 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-age, nep-dge and nep-pbe
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Related works:
Journal Article: Introducing an Austrian backpack in Spain (2022)
Working Paper: Introducing an Austrian Backpack in Spain (2022)
Working Paper: Introducing an Austrian Backpack in Spain (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1332

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