Since 2014
Fiscal and Macroeconomic Effects of Colombia`s Pension Reform
Economic Analysis Review
View Archive Info| Field | Value | |
| Title |
Fiscal and Macroeconomic Effects of Colombia`s Pension Reform
Fiscal and Macroeconomic Effects of Colombia`s Pension Reform |
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| Creator |
Schmidt-Hebbel, Klaus
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| Description |
In 1994 Colombia started replacing its state-run and pay-as-you-go (PAYG) pension system by a privately-run and fully-funded scheme. Numerical simulations for the government's reform transition reveal implicit PAYG debt levels and corresponding reform transition deficits that are high relative to other countries, considering that Colombia's old pension system was characterized by low coverage, low system maturity, and a young population.Simulation results show that output could increase by 10% due to higher future saving caused by financing the pension deficit by a fiscal contraction -but this would occur only in the very long term. Sooner and possibly larger gains could be reaped from higher employment and production in formal sectors, and the development of capital markets spurred by the reform. In addition, Colombia's new pension systemthat includes a redistributive pillar targeted at the poor -is potentially more equitable than the old scheme, To reap these efficiency and equity bellefits, however, the Colombian government would have to adopt complementary reforms. They include giving the private fully-funded pension pillar a commanding role, supporting the development of capital markets, and bolstering formal-sector employment by the reduction of deadweight tax burden of non-pension programs that are currently financed by payroll taxes on labor.
In 1994 Colombia started replacing its state-run and pay-as-you-go (PAYG) pension system by a privately-run and fully-funded scheme. Numerical simulations for the government's reform transition reveal implicit PAYG debt levels and corresponding reform transition deficits that are high relative to other countries, considering that Colombia's old pension system was characterized by low coverage, low system maturity, and a young population.Simulation results show that output could increase by 10% due to higher future saving caused by financing the pension deficit by a fiscal contraction -but this would occur only in the very long term. Sooner and possibly larger gains could be reaped from higher employment and production in formal sectors, and the development of capital markets spurred by the reform. In addition, Colombia's new pension systemthat includes a redistributive pillar targeted at the poor -is potentially more equitable than the old scheme, To reap these efficiency and equity bellefits, however, the Colombian government would have to adopt complementary reforms. They include giving the private fully-funded pension pillar a commanding role, supporting the development of capital markets, and bolstering formal-sector employment by the reduction of deadweight tax burden of non-pension programs that are currently financed by payroll taxes on labor. |
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| Publisher |
Universidad Alberto Hurtado - Facultad de Economía y Negocios
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| Contributor |
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| Date |
2010-03-08
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion — — |
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| Format |
application/pdf
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| Identifier |
http://www.rae-ear.org/index.php/rae/article/view/141
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| Source |
Revista de Análisis Económico - Economic Analysis Review; Vol 12, No 2 (1997); 37-69
Revista de Análisis Económico – Economic Analysis Review; Vol 12, No 2 (1997); 37-69 0718-8870 0716-5927 |
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| Language |
eng
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| Relation |
http://www.rae-ear.org/index.php/rae/article/view/141/270
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