The collapse of Brazilian Social Security: Macroeconomic impacts of the increase of the minimum age of PEC nº 287/2016 reform

Abstract

This paper presents a simulation of the economic impacts of the increase of the minimum age contained in the Proposal for Constitutional Amendment (PEC) nº 287/2016. For that, an overlapping generations (OLG) model with 57 generations was built, including the transition rule. The results suggest that not increasing the minimum age for retirement is a very bad choice for society. The fiscal situation becomes unsustainable, and the expansion of social security expenditures, in combination with the reduction of the labor supply, leads the country to a scenario of a sharp fall in consumption and output per capita. The simulation with the new minimum retirement age of PEC nº 287/2016 indicates that, although it is not the definitive solution to the Brazilian pension issue. The results of the model indicate that raising the minimum age avoids a very bad scenario, but does not seem to be even able to maintain the current level of output per capita. As a policy suggestion, although PEC nº 287/2016 has not even been voted, the recommendation is that it represents a minimum level for the next pension reform.