Economic impacts of the reduction of pensions and benefits on the Brazilian economy

Abstract

The aim of this paper is to simulate the effect of reductions in the Social Assistance Pension (BPC) and in the benefits of the National Pension Scheme (RGPS) and Civil Service Pension Plan (RPPS) on consumption, production, well-being and inequality, in a computable general equilibrium framework. We adopted two assumptions about the investment response to the cut of the benefits. The first assumes that the investment responds only according to the endogenous mechanisms of the model. The second premise assumes that the reduction of the expenditure and the deficit of the social security system affect the effective rate of return, increasing investment in the economy. The results show that reductions in BPC tend to increase inequality and have more impacts on low-income households. The opposite is true for decreases in RPPS expenditure. For the RGPS, there is an intermediate effect. We also found that the impact on GDP depends on the investment response. If this does not occur, the reduction in the benefits of RGPS and RPPS tends to be recessive.