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The Chilean Pension Reform: A Pioneering Program

  • Sebastian Edwards

In the mid-1970s Chile initiated a deep market-oriented reform program aimed at opening up the economy, privatizing state owned enterprises and stabilizing the macroeconomy. In the 1980s Chile began to grow at increasingly rapid rates -- between 1986 and 1995 the average rate of growth bordered 7% --, becoming a star performer. Perhaps one of the most admired aspects of the Chilean program has been the reform of the pension system, which replaced an inefficient pay-as-you-go system with a privately administered defined contribution one. " This reform has been credited with helping develop Chile's capital market, with reducing government contingent liabilities and with helping boost Chile's traditionally anemic savings rate. The purpose of this paper is to analyze the most salient aspects of the Chilean program and to evaluate its achievements to date. The paper provides a brief background of the Chilean reforms effort and deals with Chile's old pay-as-you-go system, including its degree of (in)efficiency, its distributive characteristics and its fiscal consequences. The functioning of the new privately managed system is discussed in detail, and the system's results up to date are evaluated. I also discuss transitional issues, including the fiscal consequences of the reforms. Finally, the analysis also deals with the reforms effects on labor markets and savings.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5811.

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Date of creation: Nov 1996
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Publication status: published as The Chilean Pension Reform: A Pioneering Program , Sebastian Edwards. in Privatizing Social Security , Feldstein. 1998
Handle: RePEc:nbr:nberwo:5811
Note: PE
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  1. Salvador Valdés, 1994. "Cargos por Administración en los Sistemas de Pensiones de Chile, los Estados Unidos, Malasia y Zambia," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 31(93), pages 185-228.
  2. Rodrigo Cifuentes, 1995. "Reforma de los Sistemas Previsionales: Aspectos Macroeconómicos," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 32(96), pages 217-250.
  3. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
  4. José Pablo Arellano, 1982. "Efectos Macroeconómicos de la Reforma Previsional Chilena," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 19(56), pages 111-122.
  5. Edwards, Sebastian & Edwards, Alejandra Cox, 1991. "Monetarism and Liberalization," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226184890.
  6. Morande, Felipe G., 1998. "Savings in Chile. What went right?," Journal of Development Economics, Elsevier, vol. 57(1), pages 201-228, October.
  7. Ping-Lung Hsin & Olivia S. Mitchell, . "The Political Economy of Public Pensions: Pension Funding, Governance, and Fiscal Stress," Pension Research Council Working Papers 94-6, Wharton School Pension Research Council, University of Pennsylvania.
  8. Vittas, Dimitri & Iglesias, Augusto, 1992. "The rationale and performance of personal pension plans in Chile," Policy Research Working Paper Series 867, The World Bank.
  9. Salvador Valdés & Peter Diamond, . "Social Security Reforms in Chile," Documentos de Trabajo 161, Instituto de Economia. Pontificia Universidad Católica de Chile..
  10. McGreevey, W., 1990. "Social security in Latin America: issues and options for World Bank," World Bank - Discussion Papers 110, World Bank.
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