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From Bismarck to Beveridge: the Other Pension Reform in Spain

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  • JosÈ Ignacio Conde-Ruiz
  • Clara I. Gonz·lez

Abstract

Ageing is the major challenge for the PAYG pension systems in developed countries. Most of them are undergoing reforms in order to adapt to the new demographic reality. The package of reforms implemented includes increasing the retirement age, reducing the replacement rate, or introducing a sustainability factor linking pension to life expectancy. The aim of this paper is to analyse the potential consequences of a different type of reform that is at a very incipient stage in Spain but that could have a significant impact if it were fully implemented. This reform, called Îsilent reformÌ because it is imperceptible to citizens in its early stages, basically consists in increasing maximum pensions in line with inflation instead of wage or productivity growth. This policy is reducing the replacement rate only for high earning workers and increasing the redistributive component of the system. This paper is the first to quantify and evaluate the potential consequences of this type of reform in Spain. We have used an accounting model with heterogeneous agents and overlapping generations in order to project pension expenditure for the next five decades. The results show that this type of reform could potentially contain future expenditure but at the cost of changing the nature of the pension system from a contributory or Bismarckian-type system into a pure redistributive pension system or Beveridgean-type one. The paper also shows that the institutional characteristics (i.e. the existence of maximum limits to pensions and contributions) that make this kind of reform possible are also present in the majority of developed countries with Bismarckian pension systems. Therefore, the lessons learned in this paper could be useful to other countries.

Suggested Citation

  • JosÈ Ignacio Conde-Ruiz & Clara I. Gonz·lez, 2016. "From Bismarck to Beveridge: the Other Pension Reform in Spain," Studies on the Spanish Economy eee2016-16, FEDEA.
  • Handle: RePEc:fda:fdaeee:eee2016-16
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    References listed on IDEAS

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    Cited by:

    1. J. Ignacio Conde-Ruiz & Clara I. González, 2016. "From Bismarck to Beveridge: the other pension reform in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 7(4), pages 461-490, November.
    2. Julián Díaz Saavedra, 2016. "Productividad y viabilidad del sistema Público de Pensiones," Hacienda Pública Española, IEF, vol. 218(3), pages 11-32, September.
    3. Jaroslav Vostatek, 2015. "Social and Provision Models of Pension Insurance and Savings," ACTA VSFS, University of Finance and Administration, vol. 9(1), pages 74-103.
    4. J. Ignacio Conde-Ruiz & Clara I. González, 2015. "Challenges for Spanish Pensions in the Early 21st Century," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(2), pages 20-24, 08.
    5. Alina Kulai, 2015. "Integrational Models and Forms of Inter-State Public-Private Partnership: Aspects of Financial Convergence," ACTA VSFS, University of Finance and Administration, vol. 9(1), pages 42-58.
    6. repec:ces:ifodic:v:13:y:2015:i:2:p:19166291 is not listed on IDEAS
    7. Jaroslav Tichý, 2015. "Risks of Mortgage Loans in the Czech Republic," ACTA VSFS, University of Finance and Administration, vol. 9(1), pages 59-73.
    8. Vaclav Zdarek, 2015. "A Robust Search for Determinants of Price Convergence in European Union – Known “Suspects” or New “Villains”?," ACTA VSFS, University of Finance and Administration, vol. 9(1), pages 7-41.

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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
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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