Volume 44, Number 173,
April-June 2013
Automatic Stabilization and Social Security:
Brazil, Mexico, Costa Rica and Chile
Eloy Fisher
The Costa Rican Social Security Fund (ccss)

In 1941, the precursor to the ccss was created, called the Costa Rican Social Security Institute, and soon after it provided maternity and illness services, as well as disability, old age and death pensions (in 1946 and 1947, respectively) to all of its enrollees. In the 1950s, the system was expanded to include dependents of employees and at the end of the decade and the beginning of the 1970s, contribution limits were eliminated and the maternity and illness plan was extended to the entire population. Likewise, increasing coverage and the universalization of services was accompanied by decreasing administrative costs.

Similar to the rest of the countries under study, the 1990s were a time when social security was reorganized. However, the ccss was unique. Although the 1992 Pension Framework Law was approved, unifying special funds and disability, old age and death pensions, these reforms were not as strong as in the rest of the region. Effectively, Mesa Lago (2000) recognizes that “more moderate economic reforms (in Costa Rica) led to a very low level of privatization.”

However, icss reforms increased the retirement age (although it was relatively low with respect to life expectancy) and established a single pension system by merging independent retirement programs for the various classes of public servants. In 1998, coverage was extended to all salaried workers, the way in which pensions were calculated was better defined and the mandatory nature of complementary pension programs was also described (Mesa Lago, 1999).

The Costa Rican social security system is one of the few in the region with a substantial surplus (around 1% of gdp in usd) and with stable long-term prospects, as expenditures and payments accounted for around 3% and 4% (in usd) of gdp in 2009, respectively.

The Non-Contributory Welfare Pension Program of Chile (pasis)

The pasis was created in 1975 to provide benefits for vulnerable populations above 65 years of age, and disabled persons below 18 years of age, who did not have any other social assistance program. Effectively, if the beneficiary had another pension (there were exceptions for food subsidies and payments made to victims of political violence), he could not opt into the system.

Although the pasis amount was initially determined by the minimum pension in the traditional social security system (initially the pasis was one third of the minimum pension), this link was broken in 1987, and an amount was stipulated that would be complementary to the increase in consumer price index. Still, following pasis reform, the pasis amounts now constitute more than that original third of the minimum pension. Using figures from 2002, Gana (2002) indicates that the amount of welfare pensions was just under half of contributory programs, tending towards 40.8% between 1990 and 2000.

A more detailed analysis of the effective distribution of these pensions by household income indicates that they have a greater impact in homes with restricted liquidity and greater spending propensity. A 2000 household survey indicates that pasis represents 40% of income for the poorest quintile of households, and relative to other items, pasis figures represent nearly 60%. In the second quintile, the figures reach 15% and 20%, respectively, while in the third quintile, they are at 11% and 12%. The pasis is not a significant source of income for the other two quintiles.

On the macroeconomic level, the central government contributed nearly 5% of gdp (in usd) to the program in 2009, but spent nearly 10% (in usd) for beneficiaries enrolled in the program. Although, “from 2000-2004, public spending on pasis increased 8.5% in real terms, accumulating a 163% increase since 1990) […] due to strong global economic performance and public finances, these increases have remained stable in terms of the pasis and do not represent a threat to fiscal balance” (Bertranou, Gana and Vázquez, 2006: 4). However, there is a caveat that the sustainability of the program depends in large measure on the health of tax collection, and by extension, the revenue of the central government. A reversal of general macroeconomic conditions could therefore seriously damage the expenditures on benefits for those enrolled in the program.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 192, January-March is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Feb 23th, 2018.
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