This study offers an economic analysis of cross-subsidies in the Survivors and Disability Insurance of the Chilean social security system, administered by the AFPs in the new pension system. After a description of the institution, we analyze the benefit rate and the contribution rate, establishing a presumption that older contributors obtain higher expected benefits and a cross subsidy. This finding is confirmed by an econometric analysis of benefit rates that uses cross section and times series data for 1987-89. Another finding is that there are no cross subsidies among income groups, which is not rejected by the data. The policy problem is that expected aging of the population and other factors may increase substantially the cost of this insurance over the next decades. This implies that work in the formal sector by the young will be taxed by this cross-subsidy. Some solutions are sketched, with emphasis on allowing a discount on contributions to workers below 30 years of age.
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Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Cuadernos de Economía.
Volume (Year): 29 (1992) Issue (Month): 88 () Pages: 409-442 Download reference. The following formats are available: HTML,
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