Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/286562 
Year of Publication: 
2022
Citation: 
[Journal:] SERIEs - Journal of the Spanish Economic Association [ISSN:] 1869-4195 [Volume:] 13 [Issue:] 3 [Year:] 2022 [Pages:] 513-556
Publisher: 
Springer, Heidelberg
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.
Subjects: 
Computable general equilibrium
Retirement
Social security reform
Welfare state
JEL: 
C68
H55
J26
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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