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Spanish Minimum Pensions after the 2013 Pension Reform

Author

Listed:
  • Javier Diaz Gimenez

    (IESE Business School)

  • Javier Diaz Jimenez

    (Department of Economic Theory and Economic History, University of Granada.)

Abstract

In this article we explore the consequences of exempting minimum pensions from the Pension Revaluation Index (PRI) introduced by the 2013 reform of the Spanish pension system and making their real value a constant share of per capita output instead. We nd that this change essentially implies trading-o higher minimum pensions against a lower PRI |which reduces the real value of all other pensions| and against the higher consumption tax rates that are needed to nance them. When faced with these trade-o s, the optimal responses of the households in our model economy are to work shorter hours, to retire earlier, and to save less. They also consume less to avoid paying some of the higher consumption taxes. These responses imply that preserving the real value of minimum pensions makes the growth rates of output smaller. We also nd that this change compresses the range of pensions, and that as many as 48 percent of the retirees in our model economy collect the minimum pension in 2050. This share is 28 percentage points higher than the share of 2010. It also implies that pensions are more equally distributed because the bottom tail of the pension distribution collects a larger share of the total. Interestingly, we also nd that preserving the real value of minimum pensions brings about large welfare gains.

Suggested Citation

  • Javier Diaz Gimenez & Javier Diaz Jimenez, 2015. "Spanish Minimum Pensions after the 2013 Pension Reform," ThE Papers 15/04, Department of Economic Theory and Economic History of the University of Granada..
  • Handle: RePEc:gra:wpaper:15/04
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    File URL: http://www.ugr.es/~teoriahe/RePEc/gra/wpaper/thepapers15_04.pdf
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    References listed on IDEAS

    as
    1. De La Fuente, Angel & Domã‰Nech, Rafael, 2013. "The financial impact of Spanish pension reform: A quick estimate," Journal of Pension Economics and Finance, Cambridge University Press, vol. 12(1), pages 111-137, January.
    2. J. Ignacio Conde-Ruiz & Clara I. González, 2013. "Reforma de pensiones 2011 en España," Hacienda Pública Española / Review of Public Economics, IEF, vol. 204(1), pages 9-44, March.
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    More about this item

    Keywords

    Computable general equilibrium; social security reform; retirement.;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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