First-Round Impacts of the 2008 Chilean Pension System Reform

Abstract

Abstract Chile’s innovative privatized pension system has been lauded as possible model for Social Security system overhauls in other countries, yet it has also been critiqued for not including a strong safety net for the uncovered sector. In response, the Bachelet government in 2008 implemented reforms to rectify this shortcoming. Here we offer the first systematic effort to directly evaluate the reform’s impacts, focusing on the new Basic Solidarity Pension for poor households with at least one person age 65+. Using the Social Protection Survey, we show that targeted poor households received about 2.4 percent more household annual income, with little evidence of crowding-out of private transfers. We also suggest that recipient household welfare probably increased due to slightly higher expenditures on basic consumption including healthcare, more leisure hours, and improved self-reported health. While measured short-run effects are small, follow-ups will be essential to gauge longer-run outcomes. Author Acknowledgements The authors acknowledge support provided by the Social Security Administration via a grant from the Michigan Retirement Research Center, the Pension Research Council and Boettner Center at the Wharton School of the University of Pennsylvania, and the National Institutes of Health/National Institute of Aging (NIA) grant AG023774-01(P.I. Petra Todd) on “Lifecycle health, work, aging, insurance and pensions in Chile.” Opinions and errors are solely those of the authors and not of the institutions providing funding for this study or with which the authors are affiliated. © 2011 Behrman, Calderon, Mitchell, Vasquez and Bravo.