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The Fiscal and Welfare Consequences of the Price Indexation of Spanish Pensions

Julian Diaz Saavedra ()
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Julian Diaz Saavedra: Department of Economic Theory and Economic History, University of Granada.

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

No 18/03, ThE Papers from Department of Economic Theory and Economic History of the University of Granada.

Abstract: The 2013 Spanish Pension Reform, aimed at guaranteeing the nancial sustainability of the system, introduced, among other measures, the Pension Revaluation Index (PRI), which uncouples annual pension updates from the Consumer Price Index (CPI) increases and makes the annual rise in all pensions conditional upon the system's revenue and expenditure being balanced, with ceilings and oors set in place. This automatic adjustment mechanism, however, has posed serious concerns about future pension adequacy, this being the degree of poverty alleviation and consumption smoothing that the pensions system provides to retirees, due to the expected large future reductions in the real value of the average pension. In this paper, we use a general equilibrium life cycle model, calibrated to micro and macro data in Spain, to study the scal and welfare consequences of three options for increasing pension generosity in Spain; (i) disability and minimum pensions are again fully indexed with the CPI; (ii) minimum and lower value pensions are fully indexed with the CPI; and (iii) returning to full price indexation of all Spanish pensions. While these three reforms increase, on average, pension adequacy, the tax increases needed to nance the higher future pension expenditure di er signi cantly. Moreover, most current cohorts prefer returning to the full price indexation of all Spanish pensions, but future cohorts prefer that only disability and minimum pensions be fully indexed with the CPI.

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: 32 pages
Date: 2018-06-10
New Economics Papers: this item is included in nep-age, nep-dge, nep-eec and nep-pbe
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Journal Article: The fiscal and welfare consequences of the price indexation of Spanish pensions (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:gra:wpaper:18/03

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