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. 2022;13(3):513-556.
doi: 10.1007/s13209-022-00263-x. Epub 2022 Apr 18.

Introducing an Austrian backpack in Spain

João Brogueira de Sousa  1 , Julián Díaz-Saavedra  2 , Ramon Marimon  3   4
Affiliations

Introducing an Austrian backpack in Spain

João Brogueira de Sousa et al. SERIEs (Berl). 2022.

Abstract

In an overlapping generations economy with incomplete insurance markets, the introduction of an employment fund-akin to the one introduced in Austria in 2003, also known as 'Austrian backpack'-can enhance production efficiency and social welfare. It complements the two classical systems of public insurance: pay-as-you-go (PAYG) pensions and unemployment insurance (UI). We show this in a calibrated dynamic general equilibrium model with heterogeneous agents of the Spanish economy in 2018. A 'backpack' (BP) employment fund is an individual (across jobs) transferable fund, which earns a market interest rate as a return and is financed with a payroll tax (a BP tax). The worker can use the fund while unemployed or retired. Upon retirement, backpack savings can be converted into an (actuarially fair) retirement pension. To complement the existing PAYG pension and UI systems with a welfare maximizing 6% BP tax would raise welfare by 0.96% of average consumption at the new steady state, if we model Spain as an open economy. As a closed economy, there are important general equilibrium effects, and as a result, the social value of introducing the backpack is substantially greater: 16.14%, with a BP tax of 18%. In both economies, the annuity retirement option is an important component of the welfare gains.

Keywords: Computable general equilibrium; Retirement; Social security reform; Welfare state.

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Figures

Fig. 1
Fig. 1
Labor market stocks by age in the data and in the model. Data source is the survey is Encuesta de Población Activa
Fig. 2
Fig. 2
Consumption equivalent variation (CEV) in average lifetime utility for newborn agents
Fig. 3
Fig. 3
Average profiles of consumption, work hours and liquid assets by age
Fig. 4
Fig. 4
Saving rate relative to average gross earnings for workers by age
Fig. 5
Fig. 5
Consumption equivalent variation (CEV) in average lifetime utility for newborn agents
Fig. 6
Fig. 6
Average profiles of consumption, work hours and liquid assets by age
Fig. 7
Fig. 7
Consumption equivalent variation (CEV) in average lifetime utility for newborn agents
Fig. 8
Fig. 8
Average profiles of consumption, work hours and liquid assets by age: BP economies with and without annuities
See this image and copyright information in PMC

References

    1. Ábrahám A, Brogueira de Sousa J., Marimon R, Mayr L (2021) On the Design of an European Unemployment Insurance System, https://www.ramonmarimon.eu/wp-content/uploads/2021/12/ABMM-EUIS-last.pdf
    1. Anghel B, Basso HS, Bover Hidiroglu O, Casado García JM, Hospido Quintana L, Kataryniuk I, Lacuesta Gabarain A, Montero Montero JM, Vozmediano Peraita E (2018) La desigualdad de la renta, el consumo y la riqueza en España, Documentos ocasionales/Banco de España, 1806, forthcoming
    1. Auerbach AJ, Kotlikoff LJ. Evaluating fiscal policy with a dynamic simulation model. Am Econ Rev. 1987;77(2):49–55.
    1. Banco de España (2021) Annual Report 2020. Technical report, Banco de España
    1. Brogueira de Sousa J, Díaz-Saavedra, J, Marimon R (2021, December): A Worker’s Backpack as an alternative to PAYG pension systems, ThE Papers 21/15, Department of Economic Theory and Economic History of the University of Granada

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