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The impact of a minimum pension on old age poverty and its budgetary cost. Evidence from Latin America


  • DETHIER, Jean - Jacques

    () (The World Bank, Washington DC, USA)

  • PESTIEAU, Pierre

    () (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; CREPP, University of Liège, B- 4000 Liège, Belgium)

  • ALI, Rabia

    (The World Bank, Washington DC, USA)


This paper examines the impact on old age poverty and the fiscal cost of universal minimum old age pensions in Latin America using recent household survey data for 18 countries. Alleviating old age poverty requires different approach from other age groups and a minimum pension is likely to be the only alternative available. First we measure old age poverty rates for all countries. Second we discuss the design of minimum pensions schemes, means-tested or not, as well as the disincentive effects that they are expected to have on the economic and social behavior of households including labor supply, saving and family solidarity. Third we use the household surveys to simulate the fiscal cost and the impact on poverty rates of alternative minimum pension schemes in the 18 countries. We show that a universal minimum pension would substantially reduce poverty among the elderly except in Argentina, Brazil, Chile and Uruguay where minimum pension systems already exist and poverty rates are low. Such schemes have much to be commended in terms of incentives, spillover effects and administrative simplicity but have a high fiscal cost. The latter is a function of the age at which benefits are awarded, the prevailing longevity, the generosity of benefits, the efficacy of means testing, and naturally the fiscal capacity of the country.

Suggested Citation

  • DETHIER, Jean - Jacques & PESTIEAU, Pierre & ALI, Rabia, 2010. "The impact of a minimum pension on old age poverty and its budgetary cost. Evidence from Latin America," CORE Discussion Papers 2010035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2010035

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    References listed on IDEAS

    1. Rafael Rofman & Leonardo Lucchetti & Guzmán Ourens, 2010. "Pension Systems in Latin America: Concepts and Measurements of Coverage," Documentos de Trabajo (working papers) 0510, Department of Economics - dECON.
    2. Esther Duflo, 2003. "Grandmothers and Granddaughters: Old-Age Pensions and Intrahousehold Allocation in South Africa," World Bank Economic Review, World Bank Group, vol. 17(1), pages 1-25, June.
    3. Larry Willmore, 2004. "Universal Pensions in Mauritius: Lessons for the Rest of Us," Public Economics 0412003, EconWPA.
    4. Irineu Evangelista de Carvalho Filho, 2012. "Household Income as a Determinant of Child Labor and School Enrollment in Brazil: Evidence from a Social Security Reform," Economic Development and Cultural Change, University of Chicago Press, vol. 60(2), pages 399-435.
    5. Dreze, Jean & Srinivasan, P. V., 1997. "Widowhood and poverty in rural India: Some inferences from household survey data," Journal of Development Economics, Elsevier, vol. 54(2), pages 217-234, December.
    6. Marianne Bertrand & Sendhil Mullainathan & Douglas Miller, 2003. "Public Policy and Extended Families: Evidence from Pensions in South Africa," World Bank Economic Review, World Bank Group, vol. 17(1), pages 27-50, June.
    7. Atkinson, Tony, et al, 2002. "Microsimulation of Social Policy in the European Union: Case Study of a European Minimum Pension," Economica, London School of Economics and Political Science, vol. 69(274), pages 229-243, May.
    8. Angus Deaton & Christina Paxson, 1998. "Economies of Scale, Household Size, and the Demand for Food," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 897-930, October.
    9. Mesa-Lago, Carmelo, 2004. "An appraisal of a quarter-century of structural pension reforms in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    10. Larry Willmore, 2004. "Universal Pensions in Low Income Countries," Public Economics 0412002, EconWPA.
    11. Barrientos, Armando & Gorman, Mark & Heslop, Amanda, 2003. "Old Age Poverty in Developing Countries: Contributions and Dependence in Later Life," World Development, Elsevier, vol. 31(3), pages 555-570, March.
    12. Jean O. Lanjouw & Peter Lanjouw & Branko Milanovic & Stefano Paternostro, 2004. "Relative price shifts, economies of scale and poverty during economic transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(3), pages 509-536, September.
    13. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. "Political sustainability and the design of social insurance," Journal of Public Economics, Elsevier, vol. 75(3), pages 341-364, March.
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    Cited by:

    1. Mariana Infante-Villarroel, 2015. "Framework for the Development of Social Protection Systems," World Bank Other Operational Studies 22320, The World Bank.
    2. Kaushal, Neeraj, 2014. "How Public Pension affects Elderly Labor Supply and Well-being: Evidence from India," World Development, Elsevier, vol. 56(C), pages 214-225.
    3. Esteban Calvo, 2014. "Comparative-historical Analysis of Aging Policy Reforms in Argentina, Chile, Costa Rica, and Mexico," Working Papers 61, Facultad de Economía y Empresa, Universidad Diego Portales.
    4. Javier Olivera & Blanca Zuluaga, 2014. "The Ex‐Ante Effects Of Non‐Contributory Pensions In Colombia And Peru," Journal of International Development, John Wiley & Sons, Ltd., vol. 26(7), pages 949-973, October.
    5. Loumrhari, Ghizlan, 2016. "Pensions sociales et réduction de la pauvreté. Le cas du Maroc
      [Social pensions and reduction of the poverty. The case of Morocco]
      ," MPRA Paper 74076, University Library of Munich, Germany.
    6. repec:eee:chieco:v:44:y:2017:i:c:p:16-29 is not listed on IDEAS
    7. Javier Olivera & Jhonatan Clausen, 2014. "Las características del adulto mayor peruano y las políticas de protección social," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 37(73), pages 75-113.

    More about this item


    old age poverty; income transfer; pension systems; family income; fiscal policies; human development;

    JEL classification:

    • D19 - Microeconomics - - Household Behavior - - - Other
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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