Ex-Ante Methods to Assess the Impact of Social Insurance Policies on Labor Supply with an Application to Brazil
This paper solves and estimates a stochastic model of optimal inter-temporal behavior to assess how changes in the design of the unemployment benefits and pension systems in Brazil could affect savings rates, the share of time that individuals spen...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090824114727 http://hdl.handle.net/10986/4219 |
| Summary: | This paper solves and estimates a
stochastic model of optimal inter-temporal behavior to
assess how changes in the design of the unemployment
benefits 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 distribution of an exogenous shock that
affects movements in and out of the social security system
(given 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 a
given cohort across states (in or out of the 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
distortions (lower savings rates and less formal employment)
that increase the costs of the system and might generate
regressive redistribution; (ii) there are important
interactions between the unemployment benefits 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 combining matching contributions and
anti-poverty targeted transfers to cover individuals with
limited or no savings capacity. |
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