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Life-time redistribution effects of the Spanish public pension system

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Abstract

The paper analyses the inter and intragenerational redistribution effects of the public pensions system in Spain. This is achieved by first comparing the expected present value of life-time income transfers (PVT) and internal rates of return (IRR) of different population cohorts. Secondly, we study the intragenerational aspects of the Spanish public pensions by calculating PVTs the IRRs for workers of different categories, grouped by earnings, gender and marital status. The results obtained show the nature of the important intergenerational effects of the Social Security System in Spain. The oldest 1935 cohort clearly benefits in relation to the youngest 1965 cohort. This is basically due to the gap between current wages and the contribution bases established in the 60s and 70s in Spain during the early stages of the Social Security System, and to the worsening shortfall in Social Security funding, combined with the longer of life expectancy. In addition, intragenerational effects exist by income levels. For contributors who pay between the minimum and the maximum allowable contribution bases, net transfers and rates of return are higher in actuarial terms for high income contributors. The social security `dealï is again more profitable for high income individuals since they contribute at the maximum basis, with respect to low income contributors at the minimum basis. This is due to the late entry and a higher survival rate for high income contributors. The system tends to favour women, given that they generally live longer than men and this factor is only partially offset by their lower wages. Married males, given the fact that they have longer life expectancy and leave a pension to their spouse, obtain higher present net transfers too than do single contributors. We close the paper with some comments on the slight impact and moderate effects of proposals for Social Security reform and on how these may change the previously observed redistribution effects.

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  • Guillem López & Joan Gil, 1997. "Life-time redistribution effects of the Spanish public pension system," Economics Working Papers 242, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:242
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    1. Anthony Pellechio & Gordon Goodfellow, 1983. "Individual Gains and Losses from Social Security before and after the 1983 Amendments," Cato Journal, Cato Journal, Cato Institute, vol. 3(2), pages 417-442, Fall.
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    Cited by:

    1. Afonso, Luís Eduardo & Fernandes, Reynaldo, 2005. "Uma Estimativa dos Aspectos Distributivos da Previdência Social no Brasil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 59(3), July.
    2. Stefan Traub & Tim Krieger, 2008. "Back to Bismarck? Shifting Preferences for Intragenerational Redistribution in OECD Pension Systems," LIS Working papers 485, LIS Cross-National Data Center in Luxembourg.
    3. Helmuth Cremer & Philippe Donder, 2016. "Life Expectancy Heterogeneity and the Political Support for Collective Annuities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(3), pages 594-615, July.
    4. Rainald Borck, 2007. "On the Choice of Public Pensions when Income and Life Expectancy Are Correlated," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(4), pages 711-725, August.

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    More about this item

    Keywords

    Social Security in Spain; Life-time contributions and retirement;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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