JEL Code I: Health, Education and Welfare -1997

This paper compares two of the most important structural reforms of social security in Latin Am&ecute;rica: the Chilean private fully funded system, and the public/private Argentinean "integrated" (pay-as-yougo/fully funded) program. Chile was the first country in the world to completely privatize the old public pension system. This landmark reform has had a strong influence on other pension reforms, not only in Latin America but also in other developing and developed countries. The Argentinean model has important differences in comparison with the Chilean model: (a) more, Inter and intragenerational solidarity; (b) relatively lower transition costs to be covered by the state; (c) Higher coverage of self-empleyed workers; (d) a more comprehensive regulatory framework; and (e) less gender inequality. Given these elements, the Argentinean pension model offers new insights to countries currently reforming their pension systems. The paper concludes addressing important questions regarding the weaknesses of the new Argentinean model.

Este trabajo se revisa y evalúa las principales reformas microeconómicas introducidas por el gobierno militar. Para esto se presenta una s&icute;ntesis breve, pero completa de las principales reformas e hitos que marcaron el proceso. Adicionalmente, se revisa con detalle la evidencia disponible sobre dos pol&ecute;micas originadas por las privatizaciones de empresas públicas, la cuestión sobre si el precio de venta fue menor al valor de las empresas, y el debate sobre si han sido importantes los costos de eficiencia por privatizar empresas dominantes en sus respectivos mercados. En ambos casos se concluye que no existe evidencia cuantitativa confiable que permita respaldar las opiniones que se puedan tener en una u otra dirección.

Mandated benefits are supposed to perform better than regular public programs where tax finance and expenditure are unrelated at the individual level. If benefits due to these mandated programs are valued at a one to one basis in relation to the respective tax paid by the recipients, the social cost of one dollar of public funds will be one dollar, without considering administrative costs. If benefits fall below taxes, mandated benefits are characterized by an implicit tax.

We examine the Chilean social security system, a large mandated benefit program, distinguishing among two potential sources of inefficiency due to the implicit net social security tax: the dead weight loss, that is, the welfare triangle generated by induced labor market reallocations, and the expenditure inefficiency that is the difference between the tax paid into the system and the benefit obtained from it by the individual.

A nationwide sample of individuals and households provides the relevant wage and productivity determinants, allowing the estimation of private value of social security benefits on a scenario where labor may choose among taxed employments and an untaxed sector of the economy. Equalizing differentials between monetary earnings of taxed workers vis a vis non taxed labor, permit us to solve for the implicit net tax and to quantify both sources of inefficiency. We find that total inefficiency constitutes a respectable fraction of GDP, but the welfare triangle itself is a minor component.

The policy recommendation is to improve the private benefit valuation, for example, by adjusting taxes by age and better quality and access to the pubic health system.