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The impact of Spanish pension reform on expenditure: A quick estimate

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  • Angel De la Fuente
  • Rafael Domenech

Abstract

In this paper we present a preliminary estimate of the impact of the recent agreement between the Spanish government and the social partners to reform the public contributive pension system. After updating the projections of pension expenditure constructed in de la Fuente and Doménech (2010) for the period 2008-60, we analyze the impact on this variable of raising the retirement age from 65 to 67 years, extending from 15 to 25 years the period over which wages are averaged to calculate the starting pension and increasing from 35 to 37 the number of contribution years required to obtain a “full pension.†Conditional on a series of assumptions about the evolution of employment, productivity and demographics, our estimates suggest that these measures will reduce pension expenditure by up to two percentage points of GDP once the reforms have been fully implemented in 2027. On the other hand, the existing uncertainty about the future evolution of the relevant variables suggests that it would be desirable to bring forward in time the introduction of the periodic evaluation of the system (the so-called sustainability factor) so as to have in place a mechanism that can be used to modulate the rhythm and scope of the reform if the system’s financial situation requires it before the end of the transitional period.

Suggested Citation

  • Angel De la Fuente & Rafael Domenech, 2011. "The impact of Spanish pension reform on expenditure: A quick estimate," Working Papers 1112, BBVA Bank, Economic Research Department.
    • Handle: RePEc:bbv:wpaper:1112
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    References listed on IDEAS

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    1. Angel de la Fuente, 2015. "A Simple Model of Aggregate Pension Expenditure," Hacienda Pública Española / Review of Public Economics, IEF, vol. 212(1), pages 13-50, March.
    2. Javier Alonso Meseguer & J. Ignacio Conde-Ruiz, 2007. "Reforma de las pensiones: la experiencia internacional," Working Papers 2007-18, FEDEA.
    3. Jimeno, Juan F. & Rojas, Juan A. & Puente, Sergio, 2008. "Modelling the impact of aging on social security expenditures," Economic Modelling, Elsevier, vol. 25(2), pages 201-224, March.
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    1. Angel de la Fuente, 2015. "A Simple Model of Aggregate Pension Expenditure," Hacienda Pública Española / Review of Public Economics, IEF, vol. 212(1), pages 13-50, March.
    2. Conde-Ruiz, J. Ignacio & Gonzalez, Clara I., 2012. "Spain 2011 Pension Reform," Working Papers 2012-03, FEDEA.

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    Keywords

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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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