Welfare Effects of Social Security Reforms Across Europe

The Case of France and Italy

by Raquel Fonseca Benito, Thepthida Sopraseuth

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This paper uses a calibrated life cycle model to quantify the distributional effects of Social Security reforms. The authors focus on two countries, Italy and France, because they adopted two different strategies to cope with aging. While France marginally modified its defined benefit pension plan, Italy switched from a defined benefit pension plan to a contributive system. They find both reforms redistribute welfare unevenly: high skilled workers are the primary winners of the French reform and self employed individuals, especially unskilled workers, are the losers under the new Italian Social Security arrangement. Finally, they estimate that the French reform only finances 20% of the expected deficit. This is in sharp contrast with the Italian reform which finances the expected deficit by cutting drastically the generosity of Social Security benefits.

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