Pension design with a large informal labor market: : Evidence from Chile

• Autores: Clement Joubert
• Localización: International economic review, ISSN-e 1468-2354, Vol. 56, Nº. 2, 2015, págs. 673-694
• Idioma: inglés
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• Resumen

  • This article investigates the fiscal and welfare trade-offs involved in designing a pension system when workers can avoid contributing by working informally. Using a life-cycle model of labor supply and saving decisions, I structurally estimate preferences and earnings opportunities in the formal and informal sectors using data on Chilean households. I find limited support for formal jobs rationing. Instead, mandatory pension contributions significantly encourage informality. Policy experiments show that Chile could lower minimum pension spending by 23%—while guaranteeing the same income to retirees—if the minimum pension's implicit tax rate was increased to 60%.