The ex-ante effects of non-contributory pensions in Colombia and Peru

Working Paper 2013-299

Abstract

The aim of this paper is to study the ex-ante effects of the implementation of a Non Contributory Pension (NCP) program in Colombia and Peru. Relying on household survey data, we simulate the potential impact of the transfer on poverty, inequality, fiscal cost, and the probability of affiliation to the contributory pension system. This last effect is the most direct behavioral effect one can expect from the implementation of a NCP scheme. For the behavioral response we estimate a Nested Logit Model. Our results show that a NCP in Colombia and Peru contributes to the reduction of poverty and inequality among the elderly, particularly in rural areas at affordable fiscal costs. Furthermore, there is not a large impact on the probability of affiliation to contributory pensions when the program is targeted to the poor (and extreme poor), with the exception of Peruvian women for whom there is always a sizeable reduction on their probability of affiliation to the contributory pension system.

Authors: Javier Olivera, Blanca Zuluaga.