An Assessment of the Italian 2007 Second Pillar Reform: a simulation approach

Corsini, Lorenzo and Pacini, Pier Mario and Spataro, Luca (2010): An Assessment of the Italian 2007 Second Pillar Reform: a simulation approach.

Abstract

In this paper we aim at assessing the outcomes of the 2007 Italian reform of the complementary social security and to identify the determinants behind them. The reform gave relevant incentives to workers to switch from investing about 7% of their gross wages into a compulsory defned benefit scheme inside the firm (which took the form of a termination indemnity payment, the TFR scheme) to an external pension fund. We provide a theoretical framework to model workers' choice problem of switching between these pension schemes and we then perform an agent-based simulation taking into account all the details of the reform. Our simulations are able to replicate the Italian data in term of adhesion rates to complementary social security and also to identify some of the key determinants of that outcome, like the fiscal incentives, the financial literacy and the expectations on the rate of returns of pension funds.

• Item Type: MPRA Paper
• Language: English
• Keywords: Agent Based Simulation, Pension Schemes, Second Pillar
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E27 - Forecasting and Simulation: Models and Applications; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J32 - Nonwage Labor Costs and Benefits ; Retirement Plans ; Private Pensions

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