Pension Reform Options in Chile: Some Tradeoffs

Marika Santoro

No 2017/053, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; Savings; pension reforms; macroeconomic analysis; labor cost wedge; open economy; consumption rate; reform proposal; world GDP; consumption goods; consumption tax increase; adjustment cost; contribution rate; utility function; liquidity-constrained household; replacement rate; Pensions; Pension spending; Aging; Consumption; Pension reform; Asia and Pacific; Global (search for similar items in EconPapers)
Pages: 21
Date: 2017-03-13
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Citations: View citations in EconPapers (6)

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