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The macroeconomics of pension reform: The case of severance pay reform in Italy


  • Sergio Cesaratto

    () (University of Siena, Italy)


In the last two decades Italy implemented a number of reforms of the public pay-as-you-go (PAYG) scheme that curtailed future pensions. Governments therefore felt the need to increase the number of workers contributing to fully funded (FF) schemes to offset the expected fall in public pensions. In the private sector an existing saving fund, the severance pay scheme (Trattamento di fine rapporto or TFR) was used to expand the anaemic existing FF pillar. The macroeconomic content of the reform seems fragile since the economy’s amount of precautionary saving has not changed. The question is why a bolder reform aiming at creating an additional new old-age saving scheme has not been attempted by the Italian Government. The answer presumably has to do with troubles surrounding the macroeconomics of pension reforms, in particular the difficulties of setting up a FF scheme from scratch or by diverting resources from an existing PAYG program. Not surprisingly, no reform was attempted in the public sector where the TFR works on a PAYG basis. An ancillary argument to defend the reform relies on presumed higher returns from private pension funds (PFs) compared to the old TFR. In this light, the paper examines the non-exiting financial performance of the PFs. The instability of financial markets, even before the current crises, and the fondness of workers for the old TFR are finally used to explain the low popularity of the reform. All in all, the reform seems to be more in the nature of political window-dressing, consisting in a change in management of an existing saving fund, in order to show that something has been done to preserve the future standard of living of retirees.

Suggested Citation

  • Sergio Cesaratto, 2011. "The macroeconomics of pension reform: The case of severance pay reform in Italy," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 8(1), pages 69-89.
  • Handle: RePEc:elg:ejeepi:v:8:y:2011:i:1:p69-89

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    References listed on IDEAS

    1. Nicholas Barr & Peter Diamond, 2006. "The Economics of Pensions," Oxford Review of Economic Policy, Oxford University Press, vol. 22(1), pages 15-39, Spring.
    2. Nicholas Barr, 2006. "(UBS Pensions Series 040) Pensions: Overview of Issues," FMG Discussion Papers dp562, Financial Markets Group.
    3. Harcourt,G. C., 1972. "Some Cambridge Controversies in the Theory of Capital," Cambridge Books, Cambridge University Press, number 9780521096720, May.
    4. Barr, Nicholas, 2006. "Pensions: overview of the issues," LSE Research Online Documents on Economics 2631, London School of Economics and Political Science, LSE Library.
    5. Phil Agulnik & Julian Le Grand, 1998. "Tax relief and partnership pensions," Fiscal Studies, Institute for Fiscal Studies, vol. 19(4), pages 403-428, November.
    6. Agulnik, Philip & Le Grand, Julian, 1998. "Tax relief and partnership pensions," LSE Research Online Documents on Economics 4652, London School of Economics and Political Science, LSE Library.
    7. Joan Robinson, 1953. "The Production Function and the Theory of Capital," Review of Economic Studies, Oxford University Press, vol. 21(2), pages 81-106.
    8. Le Grand, Julian & Agulnik, Philip, 1998. "Tax relief and partnership pensions," LSE Research Online Documents on Economics 51408, London School of Economics and Political Science, LSE Library.
    9. Peter Diamond & Nicholas Barr, 2006. "(UBS Pensions Series 041) The Economics of Pensions," FMG Discussion Papers dp563, Financial Markets Group.
    10. Sergio Cesaratto, 2005. "Pension Reform and Economic Theory," Books, Edward Elgar Publishing, number 2081.
    11. Sergio Cesaratto, 2007. "Are PAYG and FF Pension Schemes Equivalent Systems? Macroeconomic Considerations in the Light of Alternative Economic Theories," Review of Political Economy, Taylor & Francis Journals, vol. 19(4), pages 449-473.
    12. Riccardo Cesari & Giuseppe Grande & Fabio Panetta, 2007. "La Previdenza Complementare in Italia: Caratteristiche, Sviluppo e Opportunità per i Lavoratori," CeRP Working Papers 60, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    13. Nicholas Barr, 2006. "Pensions: Overview of the Issues," Oxford Review of Economic Policy, Oxford University Press, vol. 22(1), pages 1-14, Spring.
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    More about this item


    pension reforms; Sraffian theory; Italy;

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions


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