A progressiveness test for redistributions between generations and application to 3 countries

Discontent with old-age pensions is increasing. However, many policy responses have a redistributive impact across generations whose sign and extent is seldom available for debate. This paper argues that the intergenerational impact of policies can be measured in part by comparing the distributions of consumption in the present, for the elderly and for those in their prime age, and that this comparison is empirically feasible. The paper takes a first step in this direction by providing a model that formalizes the argument. It also presents and compares preliminary empirical measures of the distribution of expenditure for two age groups (elderly and prime-age) in three countries. A preliminary finding for Mexico is that it may be progressive to expand PAYG-financed pensions like PAM. In contrast, the same policy in Colombia appears to create inequality across generations. In Chile, the preliminary finding is that below the 61st percentile of the distribution, prime-age adults have a slightly lower standard of living than the elderly, and that this ordering reverses starting at the 68th percentile. This result is used to evaluate a policy proposed in August 2017, which would raise contributory pensions by 20% with a new 2% tax on earnings.

JEL Codes: I32, H55
Keywords: redistribution, elderly, wellbeing, pensions, consumer surveys