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An ex-ante evaluation of the impact of social insurance policies on labor supply in Brazil : the case for explicit over implicit redistribution

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  • Robalino, David A.
  • Zylberstajn, Eduardo
  • Zylberstajn, Helio
  • Afonso, Luis Eduardo

Abstract

This paper solves and estimates a stochastic model of optimal inter-temporal behavior to assess how changes in the design of the income protection and pension systems in Brazil could affect savings rates, the share of time that individuals spend outside of the formal sector, and retirement decisions. Dynamics depend on five main parameters: preferences regarding consumption and leisure, preferences regarding formal Vs. informal work, attitudes towards risks, the rate of time preference, and the distributions of two exogenous shocks that affect movements in and out of the social security system (independently of individual decisions). The yearly household survey is used to create a pseudo panel by age-cohorts and estimate the joint distribution of model parameters based on a generalized version of the Gibbs sampler. The model does a good job in replicating the distribution of the members of the cohort across states (in or out of them social security / active or retired). Because the parameters are related to individual preferences or exogenous shocks, the joint distribution is unlikely to change when the social insurance system changes. Thus, the model is used to explore how alternative policy interventions could affect behaviors and through this channel benefit levels and fiscal costs. The results from various simulations provide three main insights: (i) the Brazilian SI system today might generate unnecessary distortions (lower savings rates, less formal employment, and more early retirement) that increase the costs of the system and might generate regressive redistribution; (ii) there are important interactions between the income protection and pension systems, which calls for joint policy analysis when considering reforms; and (iii) current distortions could be reduced by creating an actuarial link between contributions and benefits and then giving matching contributions or matching capital to individuals with limited savings capacity, which requires having individual savings accounts that can be funded or notional.

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  • Robalino, David A. & Zylberstajn, Eduardo & Zylberstajn, Helio & Afonso, Luis Eduardo, 2008. "An ex-ante evaluation of the impact of social insurance policies on labor supply in Brazil : the case for explicit over implicit redistribution," Social Protection Discussion Papers and Notes 90342, The World Bank.
    • Handle: RePEc:wbk:hdnspu:90342
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    References listed on IDEAS

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    5. Clement Joubert, 2015. "Pension Design With A Large Informal Labor Market: Evidence From Chile," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(2), pages 673-694, May.
    6. Milan Vodopivec & Lilijana Madjar & Primoz Dolenc, 2009. "Non-performance of the Severance Pay Program in Slovenia," Financial Theory and Practice, Institute of Public Finance, vol. 33(1), pages 89-102.
    7. Woolford, Geoff, 2009. "Social protection for migrants from the Pacific Islands in Australia and New Zealand," Social Protection Discussion Papers and Notes 49174, The World Bank.
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    11. Piggott, John & Sane, Renuka, 2009. "Indexing pensions," Social Protection Discussion Papers and Notes 52445, The World Bank.
    12. Clement Joubert, 2011. "Pension design with a large informal labor market: evidence from Chile," 2011 Meeting Papers 1136, Society for Economic Dynamics.
    13. Ferrer, Ana M. & Riddell, W. Craig, 2009. "Unemployment insurance savings accounts in Latin America : overview and assessment," Social Protection Discussion Papers and Notes 49173, The World Bank.
    14. James, Estelle, 2009. "Rethinking survivor benefits," Social Protection Discussion Papers and Notes 52919, The World Bank.
    15. Clement Joubert, 2010. "Dynamic labor supply and saving incentives in privatized pension systems: evidence from Chile," 2010 Meeting Papers 291, Society for Economic Dynamics.
    16. Luiza Neves de Holanda Barbosa & Miguel Nathan Foguel & Charlotte Bilo, 2017. "The Brazilian Government Severance Indemnity Fund for Employees (FGTS) and unemployment insurance savings accounts in other countries: a comparative analysis of their effects on the labour market," Working Papers 164, International Policy Centre for Inclusive Growth.
    17. Rofman, Rafael & Fajnzylber, Eduardo & Herrera, German, 2008. "Reforming the pension reforms : the recent initiatives and actions on pensions in Argentina and Chile," Social Protection Discussion Papers and Notes 90346, The World Bank.
    18. Koettl, Johannes, 2009. "Human trafficking, modern day slavery, and economic exploitation," Social Protection Discussion Papers and Notes 49802, The World Bank.
    19. Woo, Kye Lee, 2009. "Productivity increases in SMEs : with special emphasis on in-service training of workers in Korea," Social Protection Discussion Papers and Notes 51251, The World Bank.
    20. World Bank, 2009. "Federative Republic of Brazil - Social Insurance and Labor Supply : Assessing Incentives and Redistribution," World Bank Publications - Reports 12667, The World Bank Group.
    21. Valdés-Prieto, Salvador, 2008. "A theory of contribution density and implications for pension design," Social Protection Discussion Papers and Notes 90344, The World Bank.

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