REFORMING THE ITALIAN PENSION SYSTEM IN THE XXI CENTURY: THE ISSUE OF SENIORITY PENSIONS ONCE AGAIN

Abstract

Alternative pension schemes, and early retirement provisions in particular, can produce different effects on retirement behavior, with significant economic consequences. This paper presents new evidence on the effect of different seniority pension reforms, considering the evolution of an agent-based economy in Italy, with heterogeneous workers whose retirement age depends on expected lifetime incomes. Using dynamic aging methods, we examine behavioral changes along proposed pension reform paths. Our model — calibrated to replicate the main demographic and economic features and retirement dynamics of the Italian economy — is used to estimate the age of retirement, total pension expenditures, pension benefits and the trend of inequality and poverty among pensioners under different policy scenarios. More precisely, we compare the current state of affairs (B) with a reform proposed by the Italian Welfare Minister (M) and with an early introduction of a mixed regime for seniority pensions (A) according to two limiting "retirement behavioral rules." Under the individual rationality hypothesis, M produces slightly higher savings with minor redistributive effects; although it leads to an increase in income concentration, M mitigates poverty problems after 2008. The reform is more effective under family-bounded rationality, but it leads to permanent and more significant increases in income concentration and aggravates the diffusion and intensity of poverty.