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Demographic Change and Pension Reform in Spain: An Assessment in a Two-Earner, OLG Model

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  • Alfonso R. Sanchez Martín
  • Virginia SanchezMarcos

Abstract

Recent pension reforms in Spain have been guided by two opposite goals, achieving financial stability and improving redistributive aspirations. In particular, reforms implemented in 1997/2002 entailed a mixture of both through (i) changes in the pension formula, (ii) the extension in the entitlement to early retirement to all cohorts, and, finally, (iii) increases in survival pensions. This paper builds an Applied General Equilibrium OLG model that captures the fundamental non-stationarity of the Spanish reality (ageing population, education transition and increasing female's attachment to the labour market) to assess the impact of those reforms. As a novel feature with respect to the literature, households in our model economy are made of two potential earners that make saving and labour supply decisions. Our main conclusions from the analysis are at three different levels. First, the Spanish pension system is clearly unsustainable, the pension expenditure will reach a figure of about 18% of the GDP in 2050, and the reforms have been clearly ineffective in improving the financial prospects of it. Second the reforms have had substantial redistributed effects, benefiting low educated groups against high educated and future cohorts against current cohorts. Finally we show that exploring the financial prospects with traditional single earner households models may result in underestimates of the future financial burden of the pension system.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 31 (2010)
Issue (Month): 3 (09)
Pages: 405-452

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Handle: RePEc:ifs:fistud:v:31:y:2010:i:3:p:405-452

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  1. Mark Huggett & Gustavo Ventura, 1999. "On the Distributional Effects of Social Security Reform," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 498-531, July.
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Citations

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Cited by:
  1. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2013. "Families and social security," EcoMod2013 5280, EcoMod.
  2. J. Ignacio Conde-Ruiz & Clara I. González, 2014. "From bismarck to beveridge: the other pension reform in Spain," Banco de Espa�a Working Papers 1417, Banco de Espa�a.
  3. J. Ignacio Conde-Ruiz & Clara I. González, 2013. "Reforma de pensiones 2011 en España," Hacienda Pública Española, IEF, IEF, vol. 204(1), pages 9-44, March.

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