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Public Sector Pension Policies and Capital Accumulation in an Emerging Economy: The Case of Brazil

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Listed:
  • Glomm Gerhard

    () (Indiana University)

  • Jung Juergen

    () (Towson University)

  • Lee Changmin

    () (Samsung Research Institute of Finance)

  • Tran Chung

    () (University of New South Wales)

Abstract

In many emerging economies such as Brazil, pension programs of public sector workers are more generous than pension programs of private sector workers. The opportunity costs of running generous public pension schemes for civil servants are potentially large in emerging economies that often suffer from low public investments in education and infrastructure. In this paper, we develop a two-sector dynamic general equilibrium framework to quantify these opportunity cost effects. We find that the efficiency and welfare gains of reallocating government resources from non-productive public sector pensions to productive public education and infrastructure investments are larger than the welfare effects created by classic public pension reforms that simply reduce savings and tax distortions by making pensions less generous. Calculating transitions to the post-reform steady state, we find that welfare losses for the generation born before the reform are offset by welfare gains by the generations born after the reform.

Suggested Citation

  • Glomm Gerhard & Jung Juergen & Lee Changmin & Tran Chung, 2010. "Public Sector Pension Policies and Capital Accumulation in an Emerging Economy: The Case of Brazil," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-40, June.
  • Handle: RePEc:bpj:bejmac:v:10:y:2010:i:1:n:15
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    References listed on IDEAS

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    1. Foguel, Miguel N. & Gill, Indermit & Mendonça, Rosane & Barros, Ricardo Paes de, 2000. "The Public-Private Wage Gap in Brazil," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 54(4), October.
    2. André Portela Souza & Hélio Zylberstajn & Luís Eduardo Afonso & Priscilla Matias Flori, 2004. "Fiscal Impacts Of Social Security Reform In Brazil," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 138, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Card, David & Krueger, Alan B, 1992. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 1-40, February.
    4. Glomm, Gerhard & Jung, Juergen & Tran, Chung, 2009. "Macroeconomic implications of early retirement in the public sector: The case of Brazil," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 777-797, April.
    5. Ferreira, Pedro Cavalcanti & Nascimento, Leandro Gonçalves do, 2005. "Welfare and growth effects of alternative fiscal rules for infrastructure investment in Brazil," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 604, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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