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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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010035.

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Date of creation: 01 Jul 2010
Date of revision:
Handle: RePEc:cor:louvco:2010035
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  1. Larry Willmore, 2004. "Universal Pensions in Low Income Countries," Public Economics 0412002, EconWPA.
  2. Irineu E. Carvalho Filho, 2008. "Household Income As A Determinant of Child Labor and School Enrollment in Brazil: Evidence From A Social Security Reform," IMF Working Papers 08/241, International Monetary Fund.
  3. 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.
  4. Mesa-Lago, Carmelo, 2004. "An appraisal of a quarter-century of structural pension reforms in Latin America," Revista CEPAL, United Nations Economic Commission for Latin America and the Caribbean (ECLAC), December.
  5. Esther Duflo, 2000. "Grandmothers and Granddaughters: Old Age Pension and Intra-household Allocation in South Africa," NBER Working Papers 8061, National Bureau of Economic Research, Inc.
  6. 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.
  7. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, December.
  8. Larry Willmore, 2004. "Universal Pensions in Mauritius: Lessons for the Rest of Us," Public Economics 0412003, EconWPA.
  9. 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.
  10. Marianne Bertrand & Douglas Miller & Sendhil Mullainathan, 2000. "Public Policy and Extended Families: Evidence from South Africa," NBER Working Papers 7594, National Bureau of Economic Research, Inc.
  11. 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, 09.
  12. 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.
  13. CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, . "Political sustainability and the design of social insurance," CORE Discussion Papers RP 1449, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  14. 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 229-43, May.
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