Minimization of inequity in the financing of the Argentine pension system: modeling of three scenarios.

Abstract

One mechanism for influencing income redistribution through a pension system is to incorporate non-contributory financing. Using mathematic modelling tools, this study compares two arrangements for financing Argentina’s pension system that emerged from an optimization exercise. One arrangement permits financing through income tax and the other does not. The former is found to be preferable in terms of equality and proves robust to changes in the investment rate and the inequality aversion parameter. The use of mathematical modelling tools by decision-makers with access to sufficient high-quality data would allow for a credible assessment of the extent to which a particular parametric reform might (or might not) contribute to improved income distribution.