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Fiscal Implications of Pension Reforms in Italy

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  • Agar Brugiavini

    ()
    (University of Venice - Department of Economics)

  • Franco Peracchi

    ()
    (University of Rome II - Centre for International Studies on Economic Growth (CEIS))

Abstract

A "good" pension reform should address a number of issues. One important aspect is the financial soundness of the system, particularly in the light of the legacy that we leave to future generations. Policy makers should also address economic efficiency at two levels: no waste of resources for a given contribution rate (or for a given benefit level), and no distortions of individual choices (or at least minimize distortions). The main distortions associated with a pension system or with its reform have to do with saving and labor supply behavior. Italy has seen a flurry of reforms during the 1990s, and economists and policy makers are still struggling to assess the results and the long-term effects of these reforms. Many analysts argue that the overall design of the recent Italian reforms is probably a good one, and yet more steps need to be taken to speed up the reform process and reap the benefits which, due the adverse demographic trends, could easily evaporate. In this paper, we contribute to the current debate on the Italian pension system by analyzing the impact of social security reforms, in terms of both budgetary implications and distributional effects. This is done by simulating the effects of three hypothetical reforms, plus the effects of the 1995-reform of the Italian pension system (the so-called Dini reform). Our approach relies on the use of a semi-structural econometric model to predict retirement probabilities under different policy scenarios, so as to properly take into account the behavioral effects of the reforms. On the basis of the estimated retirement model, we develop a complete accounting exercise which includes not only changes in gross future benefits due to policy changes, but also changes in social security contributions, income taxes and value added taxes. Thus, our results provide not only estimates of the workers' gains or losses, but also an exhaustive evaluation of the gains and losses for the government budget. We find that the reforms, particularly the Dini reform (once fully phased in), have a substantial impact on individuals' retirement decisions and their net social security wealth, as well as substantial gains for the government finances.

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 67.

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Length: 50
Date of creation: 04 Apr 2005
Date of revision:
Handle: RePEc:rtv:ceisrp:67

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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  1. Agar Brugiavini & Franco Peracchi & David A. Wise, 2002. "Pensions and Retirement Incentives. A Tale of Three Countries: Italy, Spain and the USA," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 61(2), pages 131-169, December.
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Cited by:
  1. Carlos Vidal-Meliá & Inmaculada Domínguez-Fabián & María del Carmen Boado-Penas, . "Notional Defined Contribution Accounts (NDCs): Solvency and Risk; Application to the Case of Spain," Studies on the Spanish Economy 226, FEDEA.
  2. Agar Brugiavini & Franco Peracchi, 2008. "Youth Unemployment and Retirement of the Elderly: the Case of Italy," Working Papers 2008_45, Department of Economics, University of Venice "Ca' Foscari".
  3. M. Belloni & R. Alessie, 2008. "The Importance of Financial Incentives on Retirement Choices: New Evidence for Italy," Working Papers 08-10, Utrecht School of Economics.
  4. Giuseppe Carone, 2005. "Long-term labour force projections for the 25 EU Member States: A set of data for assessing the economic impact of ageing," European Economy - Economic Papers 235, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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