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Spanish Minimum Pensions after the 2013 Pension Reform

Javier Diaz Gimenez () and Julian Diaz Saavedra ()
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Javier Diaz Gimenez: IESE Business School
Julian Diaz Saavedra: Department of Economic Theory and Economic History, University of Granada.

Authors registered in the RePEc Author Service: Javier Díaz-Giménez () and Julián Díaz-Saavedra ()

No 15/04, ThE Papers from Department of Economic Theory and Economic History of the University of Granada.

Abstract: In this article we explore the consequences of exempting minimum pensions from the Pension Revaluation Index (PRI) introduced by the 2013 reform of the Spanish pension system and making their real value a constant share of per capita output instead. We nd that this change essentially implies trading-o higher minimum pensions against a lower PRI |which reduces the real value of all other pensions| and against the higher consumption tax rates that are needed to nance them. When faced with these trade-o s, the optimal responses of the households in our model economy are to work shorter hours, to retire earlier, and to save less. They also consume less to avoid paying some of the higher consumption taxes. These responses imply that preserving the real value of minimum pensions makes the growth rates of output smaller. We also nd that this change compresses the range of pensions, and that as many as 48 percent of the retirees in our model economy collect the minimum pension in 2050. This share is 28 percentage points higher than the share of 2010. It also implies that pensions are more equally distributed because the bottom tail of the pension distribution collects a larger share of the total. Interestingly, we also nd that preserving the real value of minimum pensions brings about large welfare gains.

Keywords: Computable general equilibrium; social security reform; retirement. (search for similar items in EconPapers)
JEL-codes: C68 H55 J26 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2015-09-01
New Economics Papers: this item is included in nep-age
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