Short-Run Impacts of the 2008 Reform in the Chilean Privatized Pension System

Maria C. Calderon, Population Council
Olivia S. Mitchell, University of Pennsylvania
Javiera Vasquez, Universidad de Chile
David Bravo Urrutia, Universidad de Chile

Chile’s innovative privatized pension system has been lauded as a possible model for other country reforms, yet it has also been critiqued for not including a strong safety net for the uncovered sector. In response, in 2008 the Bachelet government implemented reforms to rectify this shortcoming. Here we offer the first systematic effort to directly evaluate the reform’s first-round impacts, focusing on the new Basic Solidarity Pension for poor households with at least one person age 65 years or above. Using the Social Protection Survey, we show that targeted poor households received about 2.4% more household annual income, with little evidence of crowding-out private transfers. We also suggest that recipient household welfare probably increased due to slightly higher expenditures on basic consumption including health care, more leisure hours, and improved self-reported health. While measured short-run effects are small, follow-ups will be essential to gauge longer-run behaviors.

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Presented in Session 29: Population Aging, Fiscal Impacts, and Economic Growth Around the World