The Effects of Social Security Privatization on Consumption, Saving and Welfare: Evidence from Peru

Type Thesis or Dissertation - Doctoral Thesis
Title The Effects of Social Security Privatization on Consumption, Saving and Welfare: Evidence from Peru
Publication (Day/Month/Year) 2008
This thesis is an empirical study of the privatization of social security in Peru, with a particular emphasis on consumption, saving and welfare. The first chapter provides a general description of the reform and positions it as a valuable study case. The second chapter evaluates the effect of the privatization on the well-being of the elderly and their dependents immediately after the reform, when social security was moving from a steady state to the other. It concludes that the effect was positive, although the larger impact was experienced neither by the poorest households nor by the oldest households. The third chapter, instead of evaluating the reform, uses the variability provided by the reform to analyze an old economic question: to what extent pension saving crowds out voluntary saving. It finds that for every dollar of insurance provided by the pension system, voluntary savings decrease by 70 cents to one dollar. I now turn to describe each chapter in detail. The first chapter describes the Peruvian social security privatization, which includes the introduction of the funded system in 1992 and the consequent modifications in the pre-existing pay-as-you-go systems. I argue that this reform is a valuable study case for a number of reasons. First, the reform was a source of a large and heterogeneous variation on both current and expected pension benefits. Contrarily, reforms within pay-as-you-go systems usually imply a general (positive or negative) effect on pension benefits. Second, the segmentation of the Peruvian labor market, in terms of a formal and informal sector, provides a valuable control group: individuals working in the informal sector, which are not covered by social security before and after the reform. Third, although official data is neither complete nor fully reliable, excellent micro-data is available from the Living Standards Measurement Study (LSMS) survey, which was developed by the World Bank. The data neatly capture the periods before and after the reform. Hence, this chapter provides the basis for the empirical analyses of the subsequent chapters of the thesis

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