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Spanish pension system: Population aging and immigration policy

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  • Javier Vazquez Grenno

    (Universidad de Barcelona & Institut d’Economia de Barcelona)

Abstract

There is a widespread consensus in the literature that, as a consequence of the demographic transition, the current Spanish pension systemwill become unsustainable in the decades coming. In this article we evaluate the sustainability of the contributory pension sub-system, taking into account the demographic projections by the Spanish Statistical Office (INE). A baseline scenario is projected as well as several reforms are simulated, focusing on: (i) an immigration policy, (ii) changes in the way of adjusting the pensions and (iii) increase of the legal age of retirement up to 68. Themain results are the following. The current systemwill not incur deficits until 2022, fromthis point onwards deficits will begin to be accumulated. The expenditure on pensions in terms of GDP will increased from 8.3% in 2009 to 17.0% in 2049. An immigration policy –aimed at foreign young people– would help, but would not ensure the long-term sustainability of the current system. A policy that combines pension growth at a pace lower than productivity growth and extends the legal age of retirement up to 68 would give solvency to the system beyond 2028.

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Bibliographic Info

Article provided by IEF in its journal Hacienda Pública Española/Revista de Economía Pública.

Volume (Year): 195 (2010)
Issue (Month): 4 (december)
Pages: 37-64

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Handle: RePEc:hpe:journl:y:2010:v:195:i:4:p:37-64

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Keywords: Immigration policy; public pensions; fiscal sustainability.;

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  1. Joan Gil & Miguel-Ángel López-García & Jorge Onrubia & Concepción Patxot & Guadalupe Souto, . "A Projection Model Of The Contributory Pension Expenditure Of The Spanish Social Security System: 2004-2050," Working Papers 30-06 Classification-JEL , Instituto de Estudios Fiscales.
  2. Rafael Domenech & Ángel Melguizo, 2008. "Projecting Pension Expenditures in Spain: On Uncertainty, Communication and Transparency," Working Papers 0803, International Economics Institute, University of Valencia.
  3. Holger Bonin & Bernd Raffelhüschen & Jan Walliser, . "Can Immigration Alleviate the Demographic Burden?," EPRU Working Paper Series 99-17, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. David Weil, 2006. "Population Aging," Working Papers 2006-09, Brown University, Department of Economics.
  5. David E. Bloom & David Canning & Jaypee Sevilla, 2001. "Economic Growth and the Demographic Transition," NBER Working Papers 8685, National Bureau of Economic Research, Inc.
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  7. Juan F. Jimeno & Juan A. Rojas & Sergio Puente, 2006. "Modeling the impact of aging on social security expenditures," Banco de Espa�a Occasional Papers 0601, Banco de Espa�a.
  8. James Feyrer, 2007. "Demographics and Productivity," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 100-109, February.
  9. Castro Martín Teresa & Roig Vila Marta, 2007. "Immigrant Mothers, Spanish Babies. Childbearing Patterns of Foreign Women in Spain," Working Papers 201086, Fundacion BBVA / BBVA Foundation.
  10. Javier Diaz-Gimenez & Julian Diaz-Saavedra, 2009. "Delaying Retirement in Spain," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 147-167, January.
  11. Kjetil Storesletten, . "Sustaining Fiscal Policy Through Immigration," Homapage Papers _005, Stockholm University, Institute for International Economic Studies.
  12. David Blake & Les Mayhew, 2006. "On The Sustainability of the UK State Pension System in the Light of Population Ageing and Declining Fertility," Economic Journal, Royal Economic Society, vol. 116(512), pages F286-F305, 06.
  13. Martin, John P. & Whitehouse, Edward, 2008. "Reforming Retirement-Income Systems: Lessons from the Recent Experiences of OECD Countries," IZA Discussion Papers 3521, Institute for the Study of Labor (IZA).
  14. M. Dolores Collado & IÒigo Iturbe-Ormaetxe & Guadalupe Valera, 2004. "Quantifying the Impact of Immigration on the Spanish Welfare State," International Tax and Public Finance, Springer, vol. 11(3), pages 335-353, 05.
  15. Balmaseda, Manuel & Melguizo, Angel & Taguas, David, 2006. "Las reformas necesarias en el sistema de pensiones contributivas en España
    [Reforming the Spanish contributory pension system]
    ," MPRA Paper 19574, University Library of Munich, Germany, revised 01 Mar 2006.
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