Argentina and social security transitions

by on November 26, 2004 at 7:46 am in Economics | Permalink

I vow to stop calling these programs "privatizations."

The Argentine government must continue to provide benefits to workers who have retired under the old pay-as-you-go system. Meanwhile, payroll taxes are being diverted to personal retirement accounts. The government must also find some way to recognize contributions to the old system made by workers now participating in the new system. Argentina has chosen to recognize those contributions with the compensatory pension. Some analysts estimate that it will take 75 years or more to pay off the transitional obligations.

Might this soon be coming to an American screen near you?  Here is the whole Argentine story.  Here are other international examples.  Here is an essay on how social security transition problems worsened Argentina’s fiscal crisis.  Here is a summary of the lessons from international experience.  No one — even among countries with weaker "welfare state" traditions — has done away with an underlying safety net, behind the private accounts.  No one has avoided real and significant fiscal costs, no matter how the transition plan was structured.

Ah, but will the U.S. do it better?  Unlikely.

Chile, of course, had a dictatorship and instituted some radical market-oriented reforms.  How did their scheme proceed?

In Chile, that [revenue] shortfall was partly financed by fiscal tightening through a reformed tax system, including a new consumption tax, prereform cuts in spending, and the sale of some government enterprises. 

The U.S. "privatization" plans, whatever their merits or demerits in absolute terms, have no chance of going well without comparable domestic reforms up front

Comments on this entry are closed.

Previous post:

Next post: