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Introducing an Austrian backpack in Spain

Author

Listed:
  • João Brogueira de Sousa

    (Universidade Nova de Lisboa)

  • Julián Díaz-Saavedra

    (Universidad de Granada)

  • Ramon Marimon

    (Universitat Pompeu Fabra, Barcelona School of Economics
    European University Institute)

Abstract

In an overlapping generations economy with incomplete insurance markets, the introduction of an employment fund—akin to the one introduced in Austria in 2003, also known as ‘Austrian backpack’—can enhance production efficiency and social welfare. It complements the two classical systems of public insurance: pay-as-you-go (PAYG) pensions and unemployment insurance (UI). We show this in a calibrated dynamic general equilibrium model with heterogeneous agents of the Spanish economy in 2018. A ‘backpack’ (BP) employment fund is an individual (across jobs) transferable fund, which earns a market interest rate as a return and is financed with a payroll tax (a BP tax). The worker can use the fund while unemployed or retired. Upon retirement, backpack savings can be converted into an (actuarially fair) retirement pension. To complement the existing PAYG pension and UI systems with a welfare maximizing 6% BP tax would raise welfare by 0.96% of average consumption at the new steady state, if we model Spain as an open economy. As a closed economy, there are important general equilibrium effects, and as a result, the social value of introducing the backpack is substantially greater: 16.14%, with a BP tax of 18%. In both economies, the annuity retirement option is an important component of the welfare gains.

Suggested Citation

  • João Brogueira de Sousa & Julián Díaz-Saavedra & Ramon Marimon, 2022. "Introducing an Austrian backpack in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(3), pages 513-556, September.
  • Handle: RePEc:spr:series:v:13:y:2022:i:3:d:10.1007_s13209-022-00263-x
    DOI: 10.1007/s13209-022-00263-x
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    1. Julián Díaz-Saavedra & Ramon Marimon & João Brogueira de, 2023. "A Worker’s Backpack as an Alternative to PAYG Pension Systems," Journal of the European Economic Association, European Economic Association, vol. 21(5), pages 1944-1993.

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    More about this item

    Keywords

    Computable general equilibrium; Welfare state; Social security reform; Retirement;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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