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Demographic Change, Pension Reform and Redistribution in Spain

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  • Alfonso Sánchez
  • Virginia Sánchez Marcos

Abstract

Recent demographic changes have spurred pension reforms aimed at restoring the financial sustainability of PAYG systems. In Spain, the most significant reforms were undertaken in 1997 and in2002, entailing an increase in the length of the averaging period in the pension formula, an increase in the penalties for early retirement and for retirement with short contributive records, a bonus for retirement after the age of 65,and a change in the eligibility conditions. In this paper we use an Applied General Equilibrium model populated by two-earners house holds to evaluate the redistributive impact of the pension system and the financial and welfare consequences of these reforms on households that differ in their education, region of residence and year of birth. The initial redistribution is assessed by comparing the internal rate of return provided to different households. We find that they vary considerable depending on education and cohort. Regarding the reforms, we find an increase in the implicit debt of the pension system after the reforms, and important changes in welfare. Households up to secondary education born between 1935 and 1975 are predicted to benefit from the reform, while the welfare of younger cohorts will be hit by higher taxes and unfavourable macroeconomic changes.

Suggested Citation

  • Alfonso Sánchez & Virginia Sánchez Marcos, 2008. "Demographic Change, Pension Reform and Redistribution in Spain," Working Papers 2008-14, FEDEA.
  • Handle: RePEc:fda:fdaddt:2008-14
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    References listed on IDEAS

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    Cited by:

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    2. Clara Isabel González & J. Ignacio Conde-Ruiz & Michele Boldrin, 2008. "Immigration and Social Security in Spain," Working Papers 2008-36, FEDEA.
    3. José Francisco Bellod Redondo, 2010. "Pensiones – La Aritmética Del Miedo," Contribuciones a la Economía, Servicios Académicos Intercontinentales SL, issue 2010-03, March.

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    More about this item

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • 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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