Dependency, equity, and taxation in the Argentinian pension system

Abstract

After an initial review of the evolution of the pension issue, this paper addresses two specific issues related to the case of Argentina. The first refers to the effects of increasing schooling on dependency, which produces an increase in the dependency rate of 5 points, which relativizes the existence of a “demographic bonus”. Then, the  universalization of the pension benefit established in 2005 is addressed, and the question of the possible inequity of providing this benefit to the population that did not make contributions is discussed. There will be such inequity only to the extent that the contributions effectively fall on the worker's income and not on the employer's; in this respect, the evidence is not conclusive. in terms of increased public spending, universalization has been a relevant factor, but not the exclusive or main one. The assertion that the universalization of the pension benefit represents a differential fiscal burden must also be evaluated against a reference scenario of full formalization of employment. A simplified exercise shows that the masses of pension benefits in both scenarios are similar; consequently, it cannot be argued that the universalization of the pension benefit has implied a greater fiscal commitment than that associated with a situation of full formalization.