The impact of the Chilean pension withdrawals during the Covid pandemic on the future savings rate. (September 2022)

• Record Type: Journal Article
• Authors: Madeira, Carlos
• Is Part Of: Journal of international money and finance. Volume 126(2022)
• Publication Date: 2022-09
• Subjects: Savings -- Pension wealth -- Life cycle -- Crowding-out -- Covid pandemic; D14 -- E21 -- H31 -- H55 -- O54; International finance -- Periodicals; Foreign exchange -- Periodicals; Finances internationales -- Périodiques; Change -- Périodiques; Foreign exchange; International finance; Periodicals; 332.04205
• DOI: 10.1016/j.jimonfin.2022.102650
• Languages: English
• ISSNs: 0261-5606

Abstract

Highlights: Chilean households consume a significant fraction of their public pensions. The covid pension withdrawals increased households' non-contributory wealth. These pension withdrawals may decrease the economy's saving rate by 1.7%. Further increases in solidarity pensions may decrease the saving rate even more. Abstract: Chile implemented pension withdrawals during the pandemic at a much larger scale than other OECD countries. Estimating a life cycle model with survey data, I find that households consume a significant fraction of their non-contributory pension wealth, implying a tradeoff between improving public pensions and increasing savings. Counterfactual simulations show that the pandemic pension withdrawals may decrease the future savings rate by 1.7%. Furthermore, policy reforms may decrease the aggregate savings rate by 0.2% for each percentage point of solidarity tax from current workers. The solidarity taxes increase substantially the pension income of poor retirees, but their effects decline over time.