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Pension reform : is there a tradeoff between efficiency and equity?

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  • James,Estelle

Abstract

In the past decade, Latin America has taken the lead in structural pension reform which replaces a publicly managed pay-as-you-go defined-benefit system with a system of privately managed, fully funded defined-contribution accounts supplemented by a social safety net This arrangement is designed to improve efficiency and growth, and preliminary evidence suggest that it has been successful in doing so. But traditional social security systems have been justified on the grounds that they are equitable and redistribute to low income groups. Are we in danger of exchanging equity for efficiency? The author argues that in fact traditional system produce many inequities, both within cohorts and across cohorts. So it is possible for pension reform to improve both equity and efficiency - a win-win situation rather than a tradeoff. The reforms undertake thus far have indeed reduced existing equity problems, but some old equity problems remain and some new ones have been created. The main policy lesson is this: Pension reforms should be carefully designed to improve equity as well as efficiency and growth. Only further empirical analyses will determine whether the redistributional goal has been achieved.

Suggested Citation

  • James,Estelle, 1997. "Pension reform : is there a tradeoff between efficiency and equity?," Policy Research Working Paper Series 1767, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1767
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    References listed on IDEAS

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    1. repec:idb:wpaper:322 is not listed on IDEAS
    2. Morande, Felipe G., 1998. "Savings in Chile. What went right?," Journal of Development Economics, Elsevier, vol. 57(1), pages 201-228, October.
    3. Haindl Rondanelli, Erik, 1996. "Chilean pension fund reform and its impact on saving," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34299, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Robert Holzmann, 1997. "Fiscal Alternatives of Moving from Unfunded to Funded Pensions," OECD Development Centre Working Papers 126, OECD Publishing.
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    Cited by:

    1. Packard,Truman G., 2001. "Is there a positive incentive effect from privatizing social security : evidence from Latin America," Policy Research Working Paper Series 2719, The World Bank.
    2. Shiller, Robert J., 1999. "Social security and institutions for intergenerational, intragenerational, and international risk-sharing," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 165-204, June.

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