IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The extension of social security coverage in developing countries

  • Jung, Juergen
  • Tran, Chung

We study the dynamic general equilibrium effects of introducing a social pension program to elderly informal sector workers in developing countries who lack formal risk sharing mechanisms against income and longevity risks. To this end, we formulate a stochastic dynamic general equilibrium model that incorporates defining features of developing countries: a large informal sector, private transfers as an informal safety net, and a non-universal social security system. We find that the extension of retirement benefits to informal sector workers results in efficiency losses due to adverse effects on capital accumulation and the allocation of resources across formal and informal sectors. Despite these losses recipients of social pensions experience welfare gains as the positive insurance effects attributed to the extension of a social insurance system dominate. The welfare gains crucially depend on the skill distribution, private intra-family transfers and the specific tax used to finance the expansion.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0304387812000454
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 99 (2012)
Issue (Month): 2 ()
Pages: 439-458

as
in new window

Handle: RePEc:eee:deveco:v:99:y:2012:i:2:p:439-458
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Selahattin Imrohoroglu & Aise Imrohoroglu, 2005. "Elimination of Social Security in a Dynastic Framework," 2005 Meeting Papers 928, Society for Economic Dynamics.
  2. Sebastian Edwards & Alejandra Cox Edwards, 2000. "Economic Reforms and Labor Markets: Policy Issues and Lessons from Chile," NBER Working Papers 7646, National Bureau of Economic Research, Inc.
  3. Marcouiller, Douglas & Ruiz de Castilla, Veronica & Woodruff, Christopher, 1997. "Formal Measures of the Informal-Sector Wage Gap in Mexico, El Salvador, and Peru," Economic Development and Cultural Change, University of Chicago Press, vol. 45(2), pages 367-92, January.
  4. Amaral, Pedro S. & Quintin, Erwan, 2006. "A competitive model of the informal sector," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1541-1553, October.
  5. Chung Tran, 2008. "Transfers and Labor Market Behavior of the Elderly in Developing Countries: Theory and Evidence from Vietnam," Caepr Working Papers 2008-018, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  6. Donald Cox & Emmanuel Jiminez, 1993. "Private Transfers And The Effectiveness Of Public Income Redistribution In The Philippines," Boston College Working Papers in Economics 236, Boston College Department of Economics.
  7. Immervoll, Herwig & Levy, Horacio & Nogueira, José Ricardo & O'Donoghue, Cathal & Siqueira, Rozane Bezerra de, 2006. "The Impact of Brazil's Tax-Benefit System on Inequality and Poverty," IZA Discussion Papers 2114, Institute for the Study of Labor (IZA).
  8. Krueger, Dirk & Perri, Fabrizio, 2010. "Public versus Private Risk Sharing," CEPR Discussion Papers 7625, C.E.P.R. Discussion Papers.
  9. repec:cup:cbooks:9780521827607 is not listed on IDEAS
  10. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
  11. Gindling, T. H. & Terrell, Katherine, 2004. "Legal Minimum Wages and the Wages of Formal and Informal Sector Workers in Costa Rica," IZA Discussion Papers 1018, Institute for the Study of Labor (IZA).
  12. Menezes-Filho, Naercio & Scorzafave, Luiz, 2009. "Employment and Inequality of Outcomes in Brazil," Insper Working Papers wpe_200, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  13. Fabio Giambiagi & Luiz de Mello, 2006. "Social Security Reform in Brazil: Achievements and Remaining Challenges," OECD Economics Department Working Papers 534, OECD Publishing.
  14. Sergio Madrid, 2005. "Discussion," Environment, Development and Sustainability, Springer, vol. 7(3), pages 401-415, 09.
  15. Ferreira, Pedro Cavalcanti Gomes & Nascimento, Leandro Gonçalves do, 2005. "Welfare and Growth Effects of Alternative Fiscal Rules for Infrastructure Investment in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 604, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  16. Luisa Fuster & Ayse Imrohoroglu & Selahattin Imrohoroglu, 2003. "A welfare analysis of social security in a dynastic framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1247-1274, November.
  17. Pratap, Sangeeta & Quintin, Erwan, 2006. "Are labor markets segmented in developing countries? A semiparametric approach," European Economic Review, Elsevier, vol. 50(7), pages 1817-1841, October.
  18. 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.
  19. Juergen Jung & Chung Tran, 2008. "The Macroeconomics of Health Savings Accounts," Caepr Working Papers 2007-023, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  20. Sergio G. Ferreira, 2005. "Pension Reform in Brazil: Transitional Issues in a Model with Endogenous Labor Supply," IBMEC RJ Economics Discussion Papers 2005-02, Economics Research Group, IBMEC Business School - Rio de Janeiro.
  21. Ferreira, Francisco H. G. & Lanjouw, Peter & Neri, Marcelo Côrtes, 2003. "A Robust Poverty Profile for Brazil Using Multiple Data Sources," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 57(1), January.
  22. Klaus Schmidt-Hebbel, 1997. "Pension Reform, Informal Markets and Long-Term Income and Welfare," Working Papers Central Bank of Chile 04, Central Bank of Chile.
  23. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
  24. Laitner, John, 1992. "Random earnings differences, lifetime liquidity constraints, and altruistic intergenerational transfers," Journal of Economic Theory, Elsevier, vol. 58(2), pages 135-170, December.
  25. Luisa Fuster, 1999. "Is Altruism Important for Understanding the Long-Run Effects of Social Security?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 616-637, July.
  26. Loayza, Norman A., 1997. "The economics of the informal sector : a simple model and some empirical evidence from Latin America," Policy Research Working Paper Series 1727, The World Bank.
  27. R. Hirschowitz, 1989. "The Other Path: The Invisible Revolution in the Third World," South African Journal of Economics, Economic Society of South Africa, vol. 57(4), pages 266-272, December.
  28. Chetty, Raj & Looney, Adam, 2006. "Consumption smoothing and the welfare consequences of social insurance in developing economies," Journal of Public Economics, Elsevier, vol. 90(12), pages 2351-2356, December.
  29. Rosenzweig, Mark R, 1988. "Risk, Private Information, and the Family," American Economic Review, American Economic Association, vol. 78(2), pages 245-50, May.
  30. Rofman, Rafael, 2005. "Social security coverage in Latin America," Social Protection Discussion Papers 32754, The World Bank.
  31. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 1999. "Social Security in an Overlapping Generations Economy with Land," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 638-665, July.
  32. Packard, Truman G., 2002. "Are there positive incentives from privatizing social security? A panel analysis of pension reform in Latin America," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(02), pages 89-109, July.
  33. Rosenzweig, Mark R, 1988. "Risk, Implicit Contracts and the Family in Rural Areas of Low-income Countries," Economic Journal, Royal Economic Society, vol. 98(393), pages 1148-70, December.
  34. Dessy, Sylvain & Pallage, Stéphane, 2001. "Taxes, Inequality and the Size of the Informal Sector," Cahiers de recherche 0112, Université Laval - Département d'économique.
  35. Low, Hamish & Maldoom, Daniel, 2004. "Optimal taxation, prudence and risk-sharing," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 443-464, March.
  36. repec:fgv:epgrbe:v:57:n:1:a:3 is not listed on IDEAS
  37. King, Robert G & Plosser, Charles I & Rebelo, Sergio T, 2002. "Production, Growth and Business Cycles: Technical Appendix," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 87-116, October.
  38. Leonardo Soriano de Alencar & Márcio I. Nakane, 2003. "Real Balances in the Utility Function: Evidence for Brazil," Working Papers Series 68, Central Bank of Brazil, Research Department.
  39. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
  40. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
  41. Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-87, January.
  42. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S72-101, July.
  43. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.
  44. de Carvalho Filho, Irineu Evangelista, 2008. "Old-age benefits and retirement decisions of rural elderly in Brazil," Journal of Development Economics, Elsevier, vol. 86(1), pages 129-146, April.
  45. Daron Acemoglu, 2010. "Theory, General Equilibrium, and Political Economy in Development Economics," Journal of Economic Perspectives, American Economic Association, vol. 24(3), pages 17-32, Summer.
  46. Cox, Donald C & Jimenez, Emmanuel, 1992. "Social Security and Private Transfers in Developing Countries: The Case of Peru," World Bank Economic Review, World Bank Group, vol. 6(1), pages 155-69, January.
  47. Donald Cox & Emanuela Galasso & Emmauel Jiminez, 2006. "Private Transfers in a Cross Section of Developing Countries," Working Papers, Center for Retirement Research at Boston College wp2006-1, Center for Retirement Research, revised Jan 2006.
  48. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 223-44, April.
  49. R. Glenn Hubbard & Kenneth L. Judd, 1985. "Social Security and Individual Welfare: Precautionary Saving, LiquidityConstraints, and the Payroll Tax," NBER Working Papers 1736, National Bureau of Economic Research, Inc.
  50. Palacios, Robert & Sluchynsky, Oleksiy, 2006. "Social pensions Part I : their role in the overall pension system," Social Protection Discussion Papers 36237, The World Bank.
  51. Salvador Valdés, 2008. "A Theory of Noncontributory Pension Design," Documentos de Trabajo 335, Instituto de Economia. Pontificia Universidad Católica de Chile..
  52. Anna Christina D'Addio, 2007. "Intergenerational Transmission of Disadvantage: Mobility or Immobility Across Generations?," OECD Social, Employment and Migration Working Papers 52, OECD Publishing.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:99:y:2012:i:2:p:439-458. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.