On The Endogenous Sustainability of the Non-funded Social Security System

The paper describes the effects of the non-funded social security systems over fertility rate and labor supply(typically family choice variables). We show that changes on fiscal policy may induce subsequent changes on family choices which produce an endogenous problem of sustainability over the social security system.

The Economic Foundations of Demographic Transition

The paper develops a general equilibrium model where population sources, such as fertility and mortality rates, are chosen variables. It is shown that the evolution of population over time depends on income and relative prices of mortality and fertility rates. Initially as a country develops, countries should face a period with increasing fertility and higher population growth rates but later fertility and population growth rate should decrease as their relative prices increase. It is also shown that multiple equilibria may arise. An equilibrium with low levels of asset will have lower per capita income, but larger fertility, mortality and population growth rates.

Government Subsidies and Political Elections: Evidence for Chile

In this paper, we explore the effects of government subsidies (monetary and in-kind) in presidential elections in Chile in 1989-2000. Our dependent variable is the percentage of votes obtained by the incumbent. We use a panel with three periods (the elections of 1989, 1993 and 1999) and 228 counties. We correct for the potential simultaneity problem derived from the fact that an incumbent facing a difficult political scenario might react by increasing subsidies to improve his/her electoral performance. Our results indicate that the greater the government spending on these types of programs (measured by the percentage of the population that receives the subsidy), the higher the votes for the incumbent. When we separate monetary and in-kind subsidies, we find that only inkind subsidies are statistically significant. We estimate that to obtain an additional vote, the incumbent has to spend between US$1,680 and US$1,920 (measured in PPP) in government subsidies.Political elections, subsidies, business cycle, unemployment

Social Security Financial Crises

This paper explores the causes of the social security financial crises. We indicate that the financial crisis might be endogenous to the social security system. The main idea is that the PAYG social security system might affect fertility and human capital's decisions and therefore, may negatively impact the aggregated growth rate of the economy. These effects lead to an endogenous erosion of the financial basis of the PAYG social security program so that, as a consequence, the PAYG system is not sustainable and it requires continuous increases in the social security tax rate.Pay-as-you-go social security, demographic transition, financial crisis

Endogenous Social Security Financial Crises

This paper addresses the causes and dynamics of pay-as-you-go social security financial crises. Its main hypothesis is there exists a self-reinforcing vicious circle between the social security system, the fertility rate and labor supply. We argue that changes in the pay-as-you-go social security tax rate may induce a subsequent demographic transition and a decline in supply of labor. Theses effects cause the system to be unsustainable, as fewer individuals pay social security taxes but more individuals receive social security benefits over time. A direct policy implication is that governments are required to adjust either the tax rate and/or the benefits of the social security system. Further, we show that when the government maintains its promised payments of benefits, the social security tax rate will follow a unit-root process that grows through time. We test our predictions concerning the fertility rate and labor supply by using the case of Chile as an experiment. The empirical analysis shows support for our hypotheses concerning fertility rate and labor supply. Later, we show evidence of a unit-root process in the social security tax rate by using data from a number of OECD countries.Social security financial crises, demographic transition

Taxation and Investment: Lessons from the Microeconomic Structure

This paper addresses the role of taxes over the firm’s investment decisions. We propose a framework that considers microeconomic decisions to evaluate aggregate effects of taxes over the economy’s investment dynamics. We obtain strong results and policy recommendations. First, and contrary to other studies, we conclude that the tax system significatively affects the long run level of capital stock in the economy. Second, we indicate that the ”first-best” policy is to tax retired profits rather than current profits. Third, when the ”first-best” policy is not available, because it does not provide enough revenues, we should implement a tax system that minimize the distortion over the relative price of investment. This tax system is a mixture of zero investment subsidies (credit to investment and depreciation allowances) and positive, but small, corporate tax. We simulate the effects of those tax policies in an economy with heterogenous firms and, under a reasonable set of parameters, we find that the effect of a tax in current profits over the long run level of capital stock, may be as large as 43 per cent of capital stock, when we compare an economy with no distortions versus an economy with a 15 per cent corporate tax rate

Is There an Endogenous Problem if Sustainability on the Pay-as-you-go Social Security System? Using the Chilean Experience as an Experiment

The paper provides empirical evidence about the effects of the "pay-as-you-go" and the individual account social security systems over the family choice variables such as fertility rate, schooling, and time spent on children and it links those effects with the sustainability of the fiscal budget on the "pay-as-you-go"system. The paper uses the 1998 CASEN database from Chile. On the database, the "pay-as-you-go" and the individual account systems coexist for individuals 35 years and older as result of the regulations established by the 1981 social security reform law. The results show that the numbers of children per family and female labor supply are depressed by increases on the "pay-as-you-go" payroll tax rate. Those effects produce an endogenous sustainability problem over the fiscal budget, as the number of individuals paying taxes and the amount of taxes paid by females decrease endogenously over time. The individual system does not show effect at all over the family decision choice analyzed.

Business Cycle and Political Election Outcomes: New Evidence from The Chilean Democracy

This paper explores the influence of economic variables in Chilean presidential elections. We use a panel where the dependent variable corresponds to the share of the vote obtained by the incumbent at a municipal level in the presidential elections of 1989, 1993 and 1999. We focus on the unemployment rate and the output-gap and find that both have a significant influence on the vote. The estimations also indicate that variables such as the crime rate, the poverty rate and the political coalition of the mayor in each municipality have an influence on the vote.Political elections, business cycle, unemployment

The economic foundations of demographic transition

The paper develops a general equilibrium model where population sources, such as fertility and mortality rates, are chosen variables. It is shown that the evolution of population over time depends on income and relative prices of mortality and fertility rates. Initially as a country develops, countries should face a period with increasing fertility and higher population growth rates but later fertility and population growth rate should decrease as their relative prices increase. It is also shown that multiple equilibria may arise. An equilibrium with low levels of asset will have lower per capita income, but larger fertility, mortality and population growth rates.