Public sector pension policies and capital accumulation in an emerging economy: The case of Brazil

Gerhard Glomm, Juergen Jung, Changmin Lee, Chung Tran

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

In many emerging economies such as Brazil, pension programs of public sector workers are more generous than pension programs of private sector workers. The opportunity costs of running generous public pension schemes for civil servants are potentially large in emerging economies that often suffer from low public investments in education and infrastructure. In this paper, we develop a two-sector dynamic general equilibrium framework to quantify these opportunity cost effects. We find that the efficiency and welfare gains of reallocating government resources from non-productive public sector pensions to productive public education and infrastructure investments are larger than the welfare effects created by classic public pension reforms that simply reduce savings and tax distortions by making pensions less generous. Calculating transitions to the post-reform steady state, we find that welfare losses for the generation born before the reform are offset by welfare gains by the generations born after the reform.

Original languageEnglish
Article number15
JournalB.E. Journal of Macroeconomics
Volume10
Issue number1
DOIs
StatePublished - 2010
Externally publishedYes

Keywords

  • Capital accumulation
  • Generous public sector pensions
  • Public education and infrastructure investments
  • Social security reform

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