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Pension Reform Options in Chile: Some Tradeoffs
Author:
Marika Santoronull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 053
Language:
English
Publication Date:
13 Mar 2017
DOI:
https://doi.org/10.5089/9781475586206.001
ISBN:
9781475586206
ISSN:
1018-5941
Pages:
21
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2017: Issue 053