Abstract

VILLAGOMEZ AMEZCUA, Alejandro  and  GARCIA CASTILLO, Francisco. The reformation to the system of pensions of the ISSSTE. Inv. Econ [online]. 2005, vol.64, n.252, pp.159-185. ISSN 0185-1667.

This paper analyses the fiscal viability of the current pension program for public sector workers (ISSS'IE) and shows that there is an urgent need for reform; not only because of its current fiscal cost, but because this cost is set to rise dramatically in the future. Currently, the social security tax paid by workers is insufficient to cover the cost of pensions, which forces the government to pay for the shortfall, equivalent to 0.20% of GDP in 2001, through a budgetary allocation called ramo XIX. Using moderate assumptions about the growth of the economy, and of this program, we estimate that the future fiscal cost, if there is no reform, will vary between 22% and 39% of GDP. A minor reform that would slightly raise workers contributions and the age of retirement could reduce this by almost 50%. Nonetheless, we should not rule out other alternatives that could reduce costs even further, and therefore allow this program to fulfill its objective which is to guaranty workers pensions.

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