Date of Award

Spring 5-17-2010

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Graduate Group

Economics

First Advisor

Petra Todd

Abstract

Chile became in 1981 the first country to opt for a pension program based on privately-managed individual pension accounts. 27 years later, after recognizing that a large fraction of the workforce was effectively not covered by the individual capitalization scheme, Chile implemented an important reform that increased the coverage and generosity of state-financed minimum pension benefits, thereby expanding the role of the State in the pension system. The purpose of this dissertation is to understand how the design of a privatized pension system with mandatory pension contributions and a state-financed safety net affects a household’s economic decisions, in order to investigate the causes of the low coverage rate of the pension system, and to predict the effects of the 2008 reform. Linked administrative and self-reported data on employment histories, earnings and savings are used to estimate a dynamic behavioral model in which a couple faces a labor market composed of a covered sector, that is subject to mandatory pension contributions, and an uncovered sector of self-employed and informal jobs. In addition to the pension savings, which are illiquid until retirement, the couple can save privately in a risk-free asset. The estimated model is used to determine the extent to which the pension contributions reduce the pension system’s coverage rate and crowd out private savings. Then, the expanded safety net implemented by the 2008 reform is introduced into the model to evaluate ex-ante its potential effects in terms of coverage, saving decisions and the fiscal cost of the reform.

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