An Ex-Ante Evaluation of the Impact of Social Insurance Policies on Labor Supply in Brazil : The Case for Explicit Over Implicit Redistribution

This paper solves and estimates a stochastic model of optimal inter-temporal behavior to assess how changes in the design of the income protection and pension systems in Brazil could affect savings rates, the share of time that individuals spend outside of the formal sector, and retirement decisions. Dynamics depend on five main parameters: preferences regarding consumption and leisure, preferences regarding formal Vs. informal work, attitudes towards risks, the rate of time preference, and the distributions of two exogenous shocks that affect movements in and out of the social security system (independently of individual decisions). The yearly household survey is used to create a pseudo panel by age-cohorts and estimate the joint distribution of model parameters based on a generalized version of the Gibbs sampler. The model does a good job in replicating the distribution of the members of the cohort across states (in or out of them social security / active or retired). Because the parameters are related to individual preferences or exogenous shocks, the joint distribution is unlikely to change when the social insurance system changes. Thus, the model is used to explore how alternative policy interventions could affect behaviors and through this channel benefit levels and fiscal costs. The results from various simulations provide three main insights: (i) the Brazilian SI system today might generate unnecessary distortions (lower savings rates, less formal employment, and more early retirement) that increase the costs of the system and might generate regressive redistribution; (ii) there are important interactions between the income protection and pension systems, which calls for joint policy analysis when considering reforms; and (iii) current distortions could be reduced by creating an actuarial link between contributions and benefits and then giving matching contributions or matching capital to individuals with limited savings capacity, which requires having individual savings accounts that can be funded or notional.

Bibliographic Details

Main Authors:	Zylberstajn, Eduardo, Robalino, David A., Zylberstajn, Helio, Afonso, Luis Eduardo
Language:	English en_US
Published:	World Bank, Washington, DC 2008-07
Subjects:	ADVISORY SERVICE, AGE GROUP, AGE GROUPS, ASSET ACCUMULATIONS, AVERAGE WAGE, BANK LENDING, BENEFICIARY, BONDS, BUSINESS CYCLE, CAPITAL ACCUMULATION, CAPITAL ACCUMULATIONS, CASH TRANSFER, CASH TRANSFERS, CHILD LABOR, COMMUNITY DEVELOPMENT, CONSUMPTION SMOOTHING, CONTRACT LABOR, CONTRIBUTION RATE, CREDIT CONSTRAINTS, DEMOGRAPHIC, DEMOGRAPHIC CHANGE, DISABLED, DISMISSAL, DISPLACED WORKERS, EARLY CHILDHOOD, EARLY RETIREMENT, EARNING, EARNINGS, ECONOMIC CHARACTERISTICS, ECONOMIC DECISIONS, ECONOMIC GROWTH, ECONOMIC THEORY, EMPLOYEE, EMPLOYER, EMPLOYERS, EMPLOYMENT, EMPLOYMENT STATUS, EMPOWERMENT, EQUILIBRIUM WAGES, EXOGENOUS SHOCKS, EXPENDITURE, EXPENDITURES, EXPLICIT SUBSIDIES, FINANCIAL SUSTAINABILITY, FIRM SIZE, FOOD PRICES, FORMAL SECTOR WAGE, FORMAL SECTOR WORKERS, FUND MANAGERS, GENDER, GENERAL EQUILIBRIUM, GLOBALIZATION, GROSS REPLACEMENT RATE, GROWTH RATE, GUARANTEE FUND, HOLDINGS, HOUSEHOLD SURVEY, HOUSEHOLD SURVEYS, HOUSEHOLDS, HUMAN CAPITAL, HUMAN DEVELOPMENT, IMPLICIT SUBSIDIES, IMPLICIT TAX, INCENTIVE PROBLEMS, INCOME, INCOME GROUPS, INCOME LEVEL, INCOME LEVELS, INCOME SUPPORT, INCOMES, INDEXED BONDS, INDIVIDUAL RETIREMENT, INEQUALITY, INFLATION, INFORMAL EMPLOYMENT, INFORMAL SECTOR, INFORMAL SECTOR WORKERS, INFORMATION SYSTEMS, INNOVATION, INSTITUTION BUILDING, INSTRUMENT, INSURANCE POLICIES, INTEREST RATE, INTEREST RATES, INTERNAL RATE OF RETURN, INTERNAL RATES OF RETURN, INTERNATIONAL BANK, INVENTORY, JOB CREATION, JOB SECURITY, JOBS, LABOR DEMAND, LABOR ECONOMICS, LABOR FORCE, LABOR FORCE PARTICIPATION, LABOR LAWS, LABOR MARKET, LABOR MARKET OUTCOMES, LABOR MARKET POLICIES, LABOR MARKETS, LABOR MIGRATION, LABOR MOBILITY, LABOR PRODUCTIVITY, LABOR REGULATION, LABOR REGULATIONS, LABOR SUPPLY, LAYOFF, LEVEL OF ASSETS, LEVEL OF RISK, LIFE EXPECTANCY, LOC, MANDATED BENEFITS, MARKET TRENDS, MICRO-DATA, MICRODATA, MINIMUM WAGE, OCCUPATIONS, OLD-AGE PENSIONS, OLDER WORKERS, OUTPUT, PENSION, PENSION EXPENDITURE, PENSION EXPENDITURES, PENSION REFORM, PENSION RIGHTS, PENSION SYSTEM, PENSION SYSTEM REFORMS, PENSION SYSTEMS, PENSIONS, PERSONAL SAVING, PRELIMINARY RESULTS, PRESENT VALUE, PRIVATE SECTOR, PRIVATE SECTOR WORKERS, PUBLIC PENSIONS, PUBLIC POLICY, RATE OF RETURN, RATES OF RETURN, REAL INTEREST, REAL INTEREST RATE, REPLACEMENT RATES, RETIREMENT, RETIREMENT AGE, RETIREMENT AGES, RISK AVERSION, SAFETY, SAFETY NET, SAFETY NETS, SAVINGS, SAVINGS ACCOUNTS, SAVINGS CAPACITY, SAVINGS RATES, SELF-EMPLOYMENT, SERVANTS, SOCIAL FUND, SOCIAL FUNDS, SOCIAL INCLUSION, SOCIAL INSURANCE SYSTEM, SOCIAL PROTECTION, SOCIAL SAFETY NET, SOCIAL SAFETY NETS, SOCIAL SECURITY, SOCIAL WELFARE, SOURCE OF INFORMATION, SUBSTITUTION EFFECTS, TRANSITION COUNTRIES, TRANSPARENCY, TURNOVER, UNEMPLOYED, UNEMPLOYED INDIVIDUALS, UNEMPLOYED WORKERS, UNEMPLOYMENT, UNEMPLOYMENT ASSISTANCE, UNEMPLOYMENT BENEFITS, UNEMPLOYMENT INSURANCE, UNEMPLOYMENT INSURANCE BENEFIT, UNEMPLOYMENT INSURANCE BENEFITS, UNEMPLOYMENT INSURANCE SYSTEM, UNEMPLOYMENT SPELL, UNEMPLOYMENT SPELLS, UNFUNDED LIABILITIES, UNINTENDED CONSEQUENCES, URBAN AREAS, VALUE OF ASSETS, WAGE PREMIUM, WAGES, WITHDRAWAL, WORKER, YOUTH EMPLOYMENT, YOUTH LABOR,
Online Access:	http://documents.worldbank.org/curated/en/2008/07/20170398/ex-ante-evaluation-impact-social-insurance-policies-labor-supply-brazil-case-explicit-over-implicit-redistribution https://hdl.handle.net/10986/20196
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