Assessing Fiscal Costs and the Distribution of Pensions in Transitions to FDC and NDC Systems: A Retrospective Analysis for Chile
Countries assessing structural pension reforms to address problems of financial sustainability and improve economic incentives face the choice between moving to a financial defined contribution (FDC) system, or to a notional defined contribution (NDC) system (or one of its variants). Unfortunately, comparisons regarding the performance of the two systems in terms of the pensions provided and transition costs are normally based on prospective actuarial estimations. In this paper, we follow a retrospective approach by simulating what would have happened in Chile if instead of the original FDC system introduced in 1981, the country would have implemented an NDC scheme. We find that transition costs under an FDC system can be considerably higher than under an NDC. In the case of Chile, other things being equal, introducing an NDC system would have generated fiscal savings during the first 45 years after the reform equivalent to 50% of initial GDP. The cost of the minimum pension guarantee would have been higher under an NDC system that pays the growth rate of the covered wage bill. This is because during the first twenty years after the reform the rate of return on financial assets was higher than the growth rate of wages. Our analysis suggests, however, that this does not have to be always the case. Depending on the assumptions regarding the stochastic process driving the dynamics of the rate of return paid by the FDC system, expected replacement rates under the NDC are not necessarily lower.
Transforming public pensions: A mixed scheme with a credit granted by the state
Birth rates have dramatically decreased and, with continuous improvements in life expectancy, pension expenditure is on an irreversibly increasing path. This will raise serious concerns for the sustainability of the public pension systems usually financed on a pay-as-you-go (PAYG) basis where current contributions cover current pension expenditure. With this in mind, the aim of this paper is to propose a mixed pension system that consists of a combination of a classical PAYG scheme and an increase of the contribution rate invested in a funding scheme. The investment of the funding part is designed so that the PAYG pension system is financially sustainable at a particular level of probability and at the same time provide some gains to individuals. In this sense, we make the individuals be an active part to face the demographic risks inherent in the PAYG and re-establish its financial sustainability.
Did the metamorphosis from Export Processing Zones to Special Economic Zones improve the efficiency of trade enclaves in India?
In this paper, the efficiency of seven conventional Special Economic Zones in India is analyzed, by adopting a stochastic production frontier technique, for the period between 1986–1987 and 2007–2008.Results indicate that although the efficiency scores of these enclaves have improved over the years, specifically with the introduction of the SEZ policy (2000–2001), it is far below the threshold level as identified in the literature. Besides, one can also observe a discrepancy emerging between better export earning zones and efficient zones. On the determinants side, policy intervention and large geographical area, accompanied by clustering of units, are found to have impacted the efficiency scores of these enclaves positively.