Calculating the redistributive impact of pension systems in LAC

Altamirano, Alvaro; Oliveri, María Laura; Bosch, Mariano; Tapia Troncoso, Waldo Working Paper Calculating the redistributive impact of pension systems in LAC IDB Working Paper Series, No. IDB-WP-01532 Provided in Cooperation with: Inter-American Development Bank (IDB), Washington, DC Suggested Citation: Altamirano, Alvaro; Oliveri, María Laura; Bosch, Mariano; Tapia Troncoso, Waldo (2023) : Calculating the redistributive impact of pension systems in LAC, IDB Working Paper Series, No. IDB-WP-01532, Inter-American Development Bank (IDB), Washington, DC, https://doi.org/10.18235/0005231 This Version is available at: https://hdl.handle.net/10419/299475 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by-nc-nd/3.0/igo/legalcode Calculating the Redistributive Impact of Pension S ystems in LAC Alvaro Altamirano María Laura Oliveri Mariano Bosch Waldo Tapia IDB WORKING PAPER SERIES No IDB-WP-01532 Inter-American Development Bank October, 2023 Calculating the Redistributive Impact of Pension Systems in LAC Alvaro Altamirano María Laura Oliveri Mariano Bosch Waldo Tapia Inter-American Development Bank October, 2023 Cataloging-in-Publication data provided by the Inter -American Development Bank Felipe Herrera Library Calculating the redistributive impact of pension systems in LAC / Alvaro Altamirano, María Laura Oliveri, Mariano Bosch, Waldo Tapia p. cm. — (IDB Working Paper Series ; 1532) Includes bibliographical references. 1. Fiscal policy -Latin America. 2. Income distribution-Latin America. 3. Equality-Latin America. 4. Poverty -Latin America. I. Altamirano, Álvaro J. II. Oliveri, María Laura. III. Bosch, Mariano. IV. Tapia Troncoso, Waldo Andrés. V. Inter -American Development Bank. Vice Presidency for Sectors and Knowledge. VI. Series. IDB -WP-1532 JEL: H55 ; J11; J14; J18; J26; J32 Keywords: Pensions, Subsidies, Taxes, Latin America http://www.iadb.org Copyright © 2023 Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial -NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-ncnd/3.0/igo/legalcode ) and may be reproduced with attribution to the IDB and for any non-commercial purpose, as provided below. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration purs uant to the UNCITRAL rules. 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The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter -American Development Bank, its Board of Directors, or the countries they represent. 1 Calculating the redistributive impact of pension systems in LAC Alvaro Altamirano, María Laura Oliveri, Mariano Bosch, and Waldo Tapia Abstract: This paper examines the implicit subsidies within pension systems across Latin America and the Caribbean (LAC) region. We first calculate the theoretical benefits of pension for hypothetical workers in 25 countries in LAC. We show that, on average, LAC's pension systems are subsidized, as they provide pensions above what workers would have obtained by investing pension contributions in a safe asset. Similarly, pension systems are designed to be progressive by offering higher replacement rates (pensions relative to earnings) for low-income workers. Despite this progressivity, in some countries, absolute subsidies could be higher for high-income workers. This occurs because the cost of one percentage point of the replacement increases with the average pension. Second, using data from social protection surveys, we estimate the incidence of pension systems in five LAC countries. We show that, on average, all five systems provide important subsidies to those workers who obtain a pension. However, given the high levels of informal work, in some countries, those subsidies are highly concentrated among high-income workers. Variation is large across countries. The three highest labor income deciles concentrate 70-95% of all subsidies in defined benefit systems such as Paraguay and Colombia. In defined contribution systems, subsidies are much more progressive, but still, because low-income workers do not qualify for minimum pensions, between 50-60% of subsidies concentrate in the high-income deciles. Countries like Chile, with explicit subsidies targeted at the bottom of the income distribution, obtain a more progressive distribution of subsidies. Because of relatively low participation rates, women have a weaker link with the pension system. They are also less likely to benefit from implicit subsidies. Finally, we show that non-contributory pensions, if welltargeted, largely improve the redistributive properties of pension systems in LAC. Keywords: Pensions, Subsidies, Taxes, Latin America JEL codes : H55 ; J11; J14; J18; J26; J32 2 Introduction The Latin America and Caribbean region is still relatively young. On average, 9% of the population is 65 and above compared to high-income countries in Europe (19.1%) or North America (16.8%). However, population aging is happening faster in Latin America and the Caribbean than anywhere else in the world. It took Europe 56 years for the share of the population older than 65 to grow from 10% to 20%. In Latin America and the Caribbean, this transition will happen in half that time (UNPD, 2019). This will increase pension expenditures in LAC from 3.9% of GDP in 2020 to 7.4% in 2050 (Aranco, et al 2022). By 2050, without reforms, as the LAC population ages, pensions are bound to absorb an important share of public spending, leaving little room for investment in other social priorities (Izquierdo, Pessino and Vuletin, 2018). Despite being one of the main components of public expenditure in LAC there is relatively little systematic measurement of how pension spending distributes resources within generations across different income and population groups and across generations. Measuring the distributive properties of pension systems is challenging. Pension systems differ from other taxes levied on households insofar as participants perceive contributions as giving them a claim to future benefits. In general, the link between pension contributions and future pension rights depends on how closely benefits are related to contribution histories, ‘actuarial fairness’, and the implicit returns on pension contributions relative to an outside investment option in a safe asset. In simple terms, an actuarially fair program would match expected individual entitlements exactly to lifetime contributions. This paper measures the within-generation tax component and redistribution in LAC. That is, how the pension system treats workers with different characteristics (income, history of contribution, gender, etc.), that belong to the same cohort. We present two exercises. First, we build on work from Altamirano et al. (2018) and update the theoretical distributional properties of pension systems in 25 LAC countries. We do this by calculating the difference between individual entitlements and lifetime contributions for hypothetical workers with full-contribution careers. It is useful to think of this exercise as what pension systems are designed to do for fully compliant workers. Second, to understand the actual incidence of pension systems in LAC we use data from social protection surveys and estimate the replacement rates (pensions relative to earnings) and implicit subsidies in five pension systems in LAC (Colombia, Chile, El Salvador, Paraguay, and Uruguay) for the generation retiring between approximately 2030 and 2040. The main results of this paper are as follows. First, on average, most of LAC's pension systems are designed to provide pensions to workers above what they would have obtained by investing pension contributions in a safe asset. However, there are large differences across countries and types of systems. In defined benefit programs (define contribution programs), a worker that contributes his entire life from age 20 to the minimum age of retirement receives an average replacement rate of 63% (37%), 30pp (9pp) higher than an actuarially fair pension. Second, pension systems are designed to be progressive by offering higher replacement rates for lowincome individuals. In defined benefit programs, workers earning 75% of the average wage obtain a replacement rate 17pp higher than workers earning 3 average wages. Despite this progressivity, absolute subsidies could be higher for high-income workers in defined benefit systems. This occurs 3 because subsidizing 1 pp of the replacement rate is substantially more costly for high-income workers. Third, the actual incidence of pension systems is far less progressive than its design implies. Given the levels and the patterns of informal work in LAC, a much higher share of highincome workers is eligible for pension benefits. This means that the incidence of built-in subsidies is highly concentrated in the upper part of the income distribution. For instance, in defined benefit systems such as Paraguay and Colombia, the three highest income deciles concentrate between 7095% of all subsidies. In defined contribution systems, subsidies are less regressive, but still, because low-income workers do not qualify for minimum pensions, between 50-60% of subsidies concentrate in the high-income deciles. Countries like Chile with explicit subsidies targeted at the bottom part of the income distribution obtain a more progressive distribution of subsidies. Because working women have a weaker link with the pension system, they are also less likely to benefit from implicit subsidies. Finally, we show that non-contributory pensions, if well-targeted, largely improve the redistributive properties of pension systems in LAC. This paper follows the literature that assesses the impacts of pension programs on redistribution. In the United States of America, several papers quantify redistribution of the social security program by calculating net present value of the expected lifetime flows of contributions (Gruber and Wise, 1999, 2004; Coile and Gruber, 2001; Liebman, 2001). In LAC, Forteza (2011) estimates the redistributive impacts of 5 pension systems Argentina, Brazil, Chile, Mexico, and Uruguay. The authors suggest calculating redistribution by comparing the distribution of the expected preand post-social security lifetime income. Finding varying degrees of redistribution, with defined benefit and mixed programs redistributing more than individual savings accounts programs. They also find that it is the Chilean individual savings accounts program, combined with the solidarity pillar, the one that contributes more to reducing inequality in this group of countries. More recently Grushka (2019) proposed a simplified way to think about redistribution by computing the difference of replacement rates by education levels (as a proxy of lifetime income). They find that in Argentina actual replacement rates of high school graduates are 10 points higher than college graduates. Pension systems constitute one of the major social programs in LAC and absorb an important part of the budget in many countries. Given the aging process, an increasing share of public spending will be destined to pay for pensions. This paper shows that though most pension systems in the region are designed to be progressive, in many countries the implicit subsidies are highly concentrated among high-income workers. Pension systems can be designed to be more progressive through three design features. First, reduce or eliminate the minimum number of years required to access benefits, particularly in defined benefit systems. This would eliminate the implicit tax workers that do not qualify for pensions pay to the system. Second, increasing the link between contributions and benefits. This could reduce subsidies in the upper part of the income distribution and third, making subsidies explicit and targeted towards the lower part of the income distribution. The paper is organized as follows. Section II describes the pension system in LAC. Section III defines the main indicators and methodology used in the paper. Section IV presents theoretical 4 benefits for hypothetical workers in 25 countries in LAC. Section V shows the incidence of pension systems in five LAC countries. Section VI provides a brief discussion and concludes. II A brief description of Pension systems in LAC Broadly speaking, the main mandatory contributory pension systems in Latin America and the Caribbean can be classified into three categories depending on the way they provide pension benefits. Countries with traditional publicly funded defined benefit systems, countries with individual accounts defined contribution systems, and countries that use mix systems.1 In defined benefit systems, the pension is determined by a formula that normally includes the retirement age; the contributions made to the system (in number of years or weeks), the average salary from which the pension is calculated (generally the last few years worked); and the minimum number of contributions to be eligible for a pension. In many of these systems, individuals who contributed less than the minimum number of contributions receive nothing from the system. In rare cases, like in Colombia, they receive their contributions back adjusted for inflation. In defined contribution systems, the pension is determined by the accumulated amount of the worker's contributions plus the returns on these contributions which is transformed into a pension in the form of a life annuity at the moment of retirement.2 The accumulated amount depends on contribution rates, interest rates, and the worker's years of contribution. The age of retirement, demography, and the technical interest rate of annuities impact the level of the annuity. In some defined contribution systems, minimum pensions are established, regardless of the accumulated amount, if the worker has reached a minimum number of contributions (like the eligibility criteria of defined benefit systems). These minimum pensions are what give these systems redistributive qualities. In some countries, there is a single contributory system (defined benefit or defined contribution) for most workers. In other countries, the total amount of the individual's pension depends on a combination of these types of system. For example, in Costa Rica, Panama, or Uruguay, one part of the pension is determined under a defined benefit system, and another, by a defined contribution system (mixed systems). In addition, non-contributory pillars have been implemented in 24 of the region's countries. Some countries, such as Bolivia or Chile, combine defined contribution systems with non-contributory pensions. Table 1 summarizes the pension systems in LAC and key parameters such as contributory rates, minimum retirement ages for men and women, and the minimum required number of years to qualify for a pension or a minimum pension. 1 See Appendix I for detailed description of terms. 2 Most defined contribution systems allowed for other retirement products such lump-sum withdrawals or periodic withdrawals. These are not considered in this paper. 5 Table 1: Main pension programs in LAC, and key parameters. Type of system Minimum retirement age Contribution rates Years required to qualify for a pension Country Men Women % Years Antigua & Barbuda Defined Benefit 62 62 14.5% 12 Argentina Defined Benefit 65 60 23.4% 30 Barbados Defined Benefit 67 67 13.5% 10 Bahamas Defined Benefit 65 65 9.8% 10 Belize Defined Benefit 65 65 10% 10 Bolivia Defined Contribution 55 50 10.0% 10, 15 (MP) Brazil Defined Benefit 65 62 28-34% 20 (M), 15 (W) Chile Defined Contribution 65 60 10.0% - Colombia Defined Benefit 62 57 16.0% 26 Colombia Defined Contribution 62 57 11.5% 23 (MP) Costa Rica DB+DC 65 65 15.4% 15, 15 (MP) Ecuador* Defined Benefit 60 60 11% 30 El Salvador Defined Benefit 60 55 16% 25 El Salvador Defined Contribution 60 55 16% 25 (MP) Guatemala Defined Benefit 60 60 5.5% 20 Guyana Defined Benefit 60 60 14% 15 Haiti Defined Benefit 55 55 12% 20 Honduras Defined Benefit 65 60 3% 15 Jamaica Defined Benefit 65 65 6% 10 Mexico Defined Benefit 65 65 6.5% 10 Mexico Defined Contribution 65 65 6.5% 15 (MP) Nicaragua Defined Benefit 60 60 17.3% 15 Panama DB+DC 62 57 13.5% 20, 15 (15) Paraguay Defined Benefit 60 60 16.5% 25 Peru Defined Benefit 65 65 13% 20 Peru Defined Contribution 65 65 10% 20 (MP) Suriname Defined Benefit 60 60 10% 10 Trinidad & Tobago Defined Benefit 60 60 13.2% 15 Uruguay DB+DC 60 60 22.5% 30 Venezuela Defined Benefit 60 55 15% 15 Note: * in Ecuador anyone can be retired with 40 years of contributions at any age. Source: Prepared by the authors. Notes: DB = Defined Benefit; DC = Defined Contribution. * In defined contribution systems, it corresponds to the rate of capitalized contributions. ** (M) denotes 12 but relatively variations of the key parameters do not alter the main results in this section.4 This subsidy can be expressed in two ways. Figure 3 shows the subsidy expressed as percentage points subsidized in the replacement rate. The average worker in the region in defined benefit (defined contribution) systems receives a subsidy of 30 (9) percentage points in his or her replacement rate. That is, given the level of contributions, an actuarially fair pension in the region would be 33% of the final formal wage, instead, the average worker receives 63%. The implied subsidy in defined benefit systems is 30 percentage points, which is equivalent to 46% of his/her total pension. The defined benefit systems that provide the greatest subsidies are Mexico (88pp), Ecuador (78pp), Guatemala (53pp) and Panama (48pp). Figure 3. Implicit subsidies/taxes of pension systems in Latin America and the Caribbean in percentage points of the replacement rate (contribution density of 100%) Source: Updated from Altamirano et al. (2018). Note: DB = Defined Benefit; DC = Defined Contribution. For mixed countries, the implicit subsidy for DB does not include 4 For example, in the case of defined benefits, if the subsidies were established as all returns over 2%, all countries will subsidies. If the interest rate 5% instead of over 3.5%, 18 cases would present subsidies instead of 20, and 6, instead of 4, would present taxes. However, regional averages and pattern will be qualitative the same. -11% -2% 0% 0% 0% 0% 0% 5% 6% 10%12%13%15%15%16% 20%22%22%23%23%25%27%28%29% 37%39%39%39%39% 44% 48% 53% 78% 88% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% BRA (BD) PER (BD) MEX (CD) PAN (CD) PER (CD) URY (CD) CRI (CD) BOL (CD) HTI (BD) JAM (BD) VEN (BD) ANT&B (BD) URY (BD) CHL (CD) BRB (BD) GUY (BD) ARG (BD) COL (CD) SLV (CD) SLV (BD) DOM (CD) BLZ (BD) TTO (BD) BHS (BD) PRY (BD) HND (BD) NIC (BD) SUR (BD) COL (BD) CRI (BD) PAN (BD) GTM (BD) ECU (BD) MEX (BD) Percentage points of the subsidized replacement rate Average DB, 30% Average DC, 9% Defined Benefit =DB Defined Contribution = DC 13 its DC component, which, in the absence of a minimum pension, equals 0 % (the two components of mixed systems are presented separately). ISO Standard 3166-1 alpha-3 nomenclature was used to denominate countries. The figure presents the baseline scenario for the average between married men and women. Alternatively, the subsidy can be expressed in monetary terms. This captures the difference in monetary value, adjusted for purchasing power parity, between the capital needed to finance the pension promised by the defined benefit rule and the capital that the individual would have accumulated in the safe asset. The average subsidy in defined benefit systems the region is close to US$ 108,000 upon retirement (Figure 4). The countries with highest subsidies are Panama (DB), and Mexico (in the old DB system), and Ecuador, with subsidies of more than 60% over the replacement rate and with amounts of US$ PPP 358,000, US$ PPP 336,000, and US$ PPP 452,000 per year, respectively. The countries that least subsidize their contributors are, Brazil, and Barbados, with negative subsidies, which corresponds to a "tax" through the pension system. Figure 4. Implicit subsidies/taxes of pension systems in Latin America and the Caribbean (contribution density of 100%) Source: Updated from Altamirano et al (2018). Prepared by the authors. Note: DB = Defined Benefit; DC = Defined Contribution. For mixed countries, the implicit subsidy for DB does not include its DC component, which, in the absence of a minimum pension, equals US$ 0 (the two components of mixed systems are presented separately). ISO Standard 3166-1 alpha-3 nomenclature was used to denominate countries. The figure -41 -8 0 0 0 0 0 0 113 14 35 38 40 41 43 60 67 75 76 78 87 89 101 101 135 167 170 183 225 336 358 452 -100 0 100 200 300 400 500 BRA (BD) PER (BD) URY (BD) MEX (CD) PAN (CD) PER (CD) URY (CD) CRI (CD) HTI (BD) JAM (BD) SUR (BD) BOL (CD) BLZ (BD) ARG (BD) BRB (BD) ANT&B (BD) GUY (BD) SLV (CD) CHL (CD) DOM (CD) SLV (BD) NIC (BD) COL (CD) TTO (BD) HND (BD) PRY (BD) GTM (BD) COL (BD) BHS (BD) CRI (BD) MEX (BD) PAN (BD) ECU (BD) Thousands of 2022 PPP dollars Average DB, 108K Average DC, 38K Defined Benefit =DB Defined Contribution = DC 14 presents the baseline scenario, in thousands of US$ PPP of 2022: simple average between married men and women. Regional averages exclude Venezuela estimates. Note that there are also important subsidies in defined contribution systems. These subsidies are explicit and arise because of the existence of minimum pensions of explicit subsidies. Minimum pension guarantee fund finances the excess pension. These subsidies represent between US$ PPP 89,000 in the Colombia, US$ PPP 76,000 in Dominican Republic, US$ PPP 67,000 in El Salvador, and US$ PPP 35,000 in Bolivia. A special case is that of Chile, which has an explicit supplementary pension subsidy that decreases with the level of individual savings. In this case, the subsidy for the average worker is equivalent to US$ PPP 75,000. The replacement rates and monetary subsidies vary sustainably by income level (Table 2). On average low-income workers exhibit relatively higher replacement rates (conditional on qualifying for pension benefits). Assuming a full contribution density, the average replacement rate in defined benefit systems for workers who earn 75% of the average wage is 69%, and 51% for workers who earn 3 average wages. Similarly in defined contribution systems in LAC the replacement rate falls from 46% to 24% (Table 2). An important point to make here is that, despite these progressive elements, monetary subsidies may increase with income in defined benefit systems. This occurs because the monetary subsidy necessary to finance a percentage point of replacement rate is higher for high-income workers. On average, workers who earn 75% of the average wage in DB systems receive an equivalent subsidy of 96,000 dollars compared to 246,000 that receive workers that earn 3 average wages. In DC systems, low-wage workers receive a subsidy of 43,000 dollars due to the minimum pension, while workers with 3 times the average wage receive a subsidy of 1,000 PPP dollars. Variation across countries is large (see appendix II for country results). In most systems replacement rates fall with income.5 However, in some countries replacements rates decline much faster than other. For example, in Brazil, Dominican Republic and Peru, replacement rates for workers who earn 75% of the average wage is 40 pp. higher than for workers who earn 3 average wages. But in countries like Colombia (RPM), Ecuador or Panama (BD), this difference is below 5 pp. In all, we observe that in countries where the replacement rates remain constant across income levels or experience only a gradual decline, there tends to be a greater provision of monetary subsidies for high-income workers. This phenomenon is present in 12 of the countries in our sample and drives the average results presented in table 2. 5 Except for Ecuador, Mexico and Haiti, where replacement rates are constant across income levels. 15 Table 2: Theoretical replacement rates by income level: By country difference in the replacement rates between 75% of average wages wage and 3 average wages (in %) Replacement rates Times the average formal wages Defined Benefit systems 0.75 1 1.5 2 3 Men 0.68 0.63 0.59 0.57 0.51 Women 0.69 0.63 0.59 0.57 0.51 Total 0.69 0.63 0.59 0.57 0.51 Defined Contribution Systems 0.75 1 1.5 2 3 Men 0.45 0.37 0.28 0.26 0.25 Women 0.47 0.38 0.29 0.24 0.22 Total 0.46 0.37 0.29 0.25 0.24 Monetary Subsidies Defined Benefit systems 0.75 1 1.5 2 3 Men 93,003 107,681 144,442 179,346 233,757 Women 100,919 118,029 157,848 197,519 259,989 Total 96,961 112,855 151,145 188,432 246,828 Defined Contribution Systems 0.75 1 1.5 2 3 Men 38,387 27,668 11,120 2.284 - Women 49,328 40,748 23,587 11,063 3,011 Total 43,858 34,208 17,353 6,673 1,506 Source: Authors calculations based on Altamirano et al, 2018. These baseline estimates correspond to simple country averages for married men and women who contribute continuously to social security from age 20 until the minimum retirement age mandated by the respective legislation. See Appendix I for further definition of exogenous parameters and assumptions. V Estimating the incidence of pension systems in five Latin American Countries. Most workers in Latin America and the Caribbean deviate from the stylized worker presented in the previous section. On average only 42% of workers contribute to pensions (Figure 5). There is a strong correlation between the level of education and the share of workers that contribute to pensions. Highly educated workers are between 20 and 50pp points more likely to contribute to pensions. In some countries, the share of low-educated workers who contribute to the system is below 10%. Therefore, the incidence of subsidies and taxes associated with the pension system will differ across individuals with different levels of education and income. 16 Figure 5 Formal jobs across countries, circa 2019 Note: Formality rates are calculated as the percentage of employed workers who contribute to the old-age social security national schemes. Source: Labor Markets and Social Security Information System (SIMS). Figure 1. Differences in formality rates across income levels and occupation, circa 2019 Note: Formality rates are calculated as the percentage of employed workers who contribute to the old-age social security national schemes. Schooling levels are estimated using a continuous years of schooling variable harmonized across countries. Source: Labor Markets and Social Security Information System (SIMS). Average LAC-19 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% GTM BOL PER VEN HND PRY SLV NIC MEX ECU COL DOM ARG PAN BRA CRI CHL URY BHS 17 We use the social protection surveys (SPS) of Chile, Colombia, El Salvador, Paraguay, and Uruguay to estimate the implicit subsides and taxes of the pension system for the generation retiring approximately between 2030 and 2040. SPS were conducted in Chile 2006, 2009, 2015 and 2022, Colombia, 2012, El Salvador, 2014, Uruguay 2012 and Paraguay 2015. The SPS include useful information to estimate the effects of pension benefits and pre-retirement labor supply. The SPS contains data about labor force participation, employment in the formal and informal sectors, savings, and demographic information of households. Along with the demographic and labor market status variables it contains information of accumulated savings in pension funds and labor market history. These retrospective questions about past pension contributions make SPS better suited for this exercise than traditional household surveys. Table 3 shows the main descriptive statistics of the dataset for men and women separately. Like the previous section, we estimate the pension benefit for individual workers and compare it to what would have been obtained in a hypothetical savings plan in a safe asset. In the case of Colombia, a traditional defined benefit system (Colombia-RPM) exists parallel to a defined contribution system (Colombia-RAIS) in which workers can migrate from one another. Therefore, this hypothetical exercise corresponds to the actual choice that workers must make as they near retirement. To estimate pension entitlements, we proceed as follows. From each country we take all workers near retirement age, between 40 and 50 years of age with positive income at the moment of the survey (regardless of whether they are contributing to pensions or not).6 Each worker reports years worked and years contributed to the pension system. For each worker we project the remaining years of contributions and potential wages until the country’s gender-specific minimum retirement age. We assume that the remaining density of contributions (years contributed over total potential years contributed) to be equal to the past density of contributions. Similarly, we impute their wage forward and backward in time using the average age and education profile of the county by formal and informal status separately. With the estimated history of contributions and wage profiles, we calculate the individual pension entitlements at the minimum retirement age for each worker. We then compare this pension with the pension that would have resulted from investing those contributions in a safe asset and converted into a fair annuity at the time of retirement. We set that rate of return to be 3.5%. We do this for men and women separately using gender specific mortality tables to estimate the fair annuity (see Altamirano, 2018 for details). 6 We also run a model with all cohort individuals with very similar results. 18 Table 3: Descriptive Statistics. Countries Average Labor Participation rate Average Formality rate Average years of schooling Average wages (2014 PPP dollars) Average contribution density All workers aged 25 to 60 Chile 77.0% 69.8% 11.1 820 62.2% Colombia 86.6% 40.0% 8.9 656 25.4% Paraguay 77.0% 19.3% 10.2 867 16.7% El Salvador 69.3% 31.3% 8.1 495 28.3% Uruguay 82.2% 74.5% 10.6 778 84.0% All workers aged 40 to 50 Chile Men 95.0% 70.6% 10.2 854 68.7% Women 61.4% 65.5% 10.9 669 49.1% Total 77.4% 67.9% 10.5 783 61.1% I quintile 79.7% 50.3% 8.1 318 44.2% V quintile 87.6% 82.9% 12.9 1,567 72.8% Colombia Men 95.1% 40.0% 8.5 705 25.7% Women 73.4% 37.7% 9.5 528 21.1% Total 88.2% 39.4% 8.7 658 24.5% I quintile 52.6% 31.9% 9.7 65 26.4% V quintile 96.2% 59.0% 12.0 1,213 38.1% Paraguay Men 96.3% 18.5% 9.2 988 47.5% Women 60.1% 20.9% 9.6 810 43.5% Total 77.8% 19.4% 9.3 920 19.2% I quintile 47.8% 0.0% 5.4 215 15.8% V quintile 95.3% 31.9% 12.2 1,353 52.5% El Salvador Men 92.5% 33.5% 7.8 578 30.3% Women 59.7% 27.4% 8.0 481 24.8% Total 72.7% 30.5% 7.9 530 27.6% I quintile 69.6% 0.0% 4.3 153 6.8% V quintile 86.3% 52.9% 11.4 911 45.9% Uruguay Men 93.9% 78.0% 9.8 978 85.2% Women 76.8% 73.6% 11.2 673 83.4% Total 85.1% 75.9% 10.5 840 84.4% I quintile 68.4% 41.2% 7.6 279 59.1% V quintile 94.2% 87.1% 12.7 1,359 93.3% The set of tables in this section show the result of this exercise. In each table we report by income decile, the share of workers that qualify for a pension (because they contribute the minimum number of years required to become eligible), the average replacement rate, and monetary 19 subsidies for workers not eligible for a pension, workers eligible for a pension and all workers. We present the results together for men and women separately in Appendix III. We present the results for Colombia-RPM and Paraguay in Tables 4 and 5, two countries with a traditional defined benefit system and with a relative low formality rate and high required number of years of contributions to qualify for a pension (26 and 25 years respectively). A few results merit attention. First, the share of workers that qualify for a pension is low and increases with income. Very few workers in the lower income deciles qualify for a pension. Less than 5% of income deciles 4 and lower achieve the required years of contributions to obtain a pension, but even for high-income workers it remains low. Only between 25-45% of workers in the highest two income deciles qualify for a pension. Second, conditional on a long history of contributions, replacement rates are larger for low-income workers in Colombia. A worker in the third income decile in Colombia receives a replacement rate of 100% of the pension vs 49.5% in the tenth income decile.7 This is due to the existence of highly subsidized minimum pension and a benefit formula that is decreasing in income. However, replacement rates are relatively flat in Paraguay as the benefit formula does not change with income. In both countries, when we account for all workers that do not qualify for pension average replacement rates increase with income. Fourth, large monetary subsidies accrue for high-income workers in both countries. The subsidies necessary to finance a high-income pension can be more than 100,000 US dollars. Finally, for a large proportion of workers the pension system acts as a pure tax. The overall tax paid is increasing with income. These are workers who contributed for a substantial number of years but did not qualify for a pension. For, example, on average, a worker in Paraguay in the tenth decile who does not qualify for a pension pays a tax equivalent to 29,000 US dollars. An important difference between these two countries is that Colombia returns the contributions adjusted by inflation to the worker that does not reach the minimum years of contribution necessary to quality for a minimum pension (a rare exception in the region). The taxes computed here correspond to the interest rate not received on those contributions. 7 The very high subsidized replacement rates in the first two deciles correspond to very few workers that report low wages. 20 Table 4: Replacement rates and implied monetary subsidies: Colombia-RPM Source: Authors’ calculations. Notes: Estimates represent the average per labor income decile resulting from applying each system’s pension rules at the time of the survey. Table 5: Replacement rates and implied monetary subsidies: Paraguay Source: Authors’ calculations. Notes: Estimates represent the average per labor income decile resulting from applying each system’s pension rules at the time of the survey. Workers not eligible for a pension Workers eligible for a pension All Workers Workers not eligible for a pension Workers eligible for a pension All Workers 13.8% 0.2% 100.0% 14.4% -139 122,133 4,553 24.4% 0.2% 100.0% 7.2% -259 111,809 4,693 33.6% 0.2% 100.0% 4.3% -337 107,382 3,567 46.8% 0.5% 85.4% 6.3% -869 104,238 6,315 521.1% 0.9% 77.1% 17.0% -2,068 98,548 19,164 614.1% 0.7% 69.3% 10.3% -1,716 94,977 11,874 715.6% 0.9% 55.5% 9.4% -2,639 91,079 12,026 827.4% 0.9% 51.7% 14.9% -3,479 94,173 23,317 929.4% 1.2% 51.0% 15.8% -6,159 131,611 34,398 10 45.6% 1.4% 49.5% 23.3% -14,906 242,347 102,330 Labor Income Decile Share of workers eligible for a pension (%) Average replacement rate (% of final pay) Average monetary subsidies (2014 PPP dollars) Workers not eligible for a pension Workers eligible for a pension All Workers Workers not eligible for a pension Workers eligible for a pension All Workers 10.3% 0.0% 87.7% 0.3% -1,601 51,624 -1,444 21.5% 0.0% 66.7% 1.0% -2,441 80,755 -1,226 30.3% 0.0% 71.4% 0.2% -2,407 91,889 -2,108 42.5% 0.0% 72.1% 1.8% -3,657 107,702 -921 54.5% 0.0% 68.8% 3.1% -4,543 123,913 1,218 65.9% 0.0% 71.5% 4.2% -6,256 134,933 2,049 710.3% 0.0% 71.9% 7.4% -7,620 153,689 8,979 817.6% 0.0% 73.4% 12.9% -12,574 214,440 27,372 936.8% 0.0% 73.0% 26.9% -19,560 276,243 89,241 10 25.6% 0.0% 71.6% 18.3% -29,032 411,439 83,599 Labor Income Decile Average replacement rate (% of final pay) Average monetary subsidies (2014 PPP dollars) Share of workers eligible for a pension (%) 21 Table 6 shows the results for Uruguay8. Like Paraguay and Colombia Uruguay has a defined benefit pillar with similar redistribute components. However, Uruguay is substantially more formal, with around 70% of workers contributing to pensions at any given time. The Uruguayan case is comparable to Brazil and Argentina. Uruguay has a complementary defined contribution pillar, but this has no impact on redistribution, and we do not model it in this exercise. The replacement rates for those workers who qualify for a pension are relatively flat. The share of the subsidies/tax patterns are akin to Colombia and Paraguay, with low deciles of the income distribution receiving lower overall subsidies. However, given the higher levels of formality and contribution rates in Uruguay, the taxes for those that do not qualify are substantially higher. The average replacement rate of a worker that does not qualify for a pension in Uruguay in the fifth decile is 11,000 US dollars. Another important redistribute policy in the case of Uruguay is the maximum pensions which dramatically lowers subsidies for workers at the top of the income distribution. The average worker in the 10th decile of the income distribution pays a tax of around 19,000 US dollars. Table 6: Replacement rates and implied monetary subsidies: Uruguay Source: Authors’ calculations. Notes: Estimates represent the average per labor income decile resulting from applying each system’s pension rules at the time of the survey. Tables 7 and 8, and 9 show the results for El Salvador, Colombia-RAIS, and Chile. These three countries have defined contribution systems. In principle, all workers retain all their capitalized savings, so there are no taxes associated with these systems. All three systems have some redistributive components built in. EL Salvador and Colombia have minimum pensions that are 8 Uruguay’s systems allows for different benefits depending on the retirement age, this exercise only captures subsidies and taxes that have accrued at normal retirement age. Workers not eligible for a pension Workers eligible for a pension All Workers Workers not eligible for a pension Workers eligible for a pension All Workers 124.3% 0.0% 54.9% 13.3% -1,916 17,636 2,832 225.5% 0.0% 54.8% 14.0% -3,484 31,857 5,543 329.6% 0.0% 55.5% 16.5% -6,945 41,889 7,527 439.8% 0.0% 55.8% 22.2% -10,977 50,131 13,353 535.2% 0.0% 55.8% 19.7% -11,138 51,005 10,765 648.1% 0.0% 55.9% 26.9% -14,111 64,587 23,719 755.7% 0.0% 55.4% 30.8% -18,443 75,412 33,842 859.9% 0.0% 55.6% 33.3% -20,844 82,226 40,915 959.6% 0.0% 55.7% 33.2% -29,068 102,085 49,110 10 71.4% 0.0% 29.0% 20.7% -56,086 -4,941 -19,578 Average monetary subsidies (2014 PPP dollars) Labor Income Decile Share of workers eligible for a pension (%) Average replacement rate (% of final pay) 28 are in the first three income deciles, and Scenario II grants non-contributory pensions to the first six income deciles. VI. Discussion and Conclusions Pension systems are social contracts whose main objective is to reduce poverty and smooth consumption in old age. These are complex contracts to interpret for several reasons. First, there are very long-term contracts in which, for several decades, citizens contribute to the system and, for another two or three decades, receive benefits from the system. Second, individuals with different characteristics and work histories will obtain very different benefits (which are not necessarily related to their proportional participation in the program). Third, there is no single transparent way to measure the relationship between entitlements and contributions. This makes establishing measures of equity or financial redistribution challenging. Pensions constitute one of the major social programs in LAC and absorb an important part of the budget in many countries. Given the aging process, an increasing share of public spending will be devoted to pay for pensions. This paper shows that though most pension systems in the region are designed to be progressive in the sense of providing higher replacement rates to low-income workers, in many countries the implicit subsidies are highly concentrated among high-income workers. This is more acute in defined-benefit systems, which are generous to those who obtain a pension and impose a tax on those who do not. Given the level and pattern of informality in labor markets of the region, this result is a highly inequitable distribution of subsidies. But it also occurs in defined contribution systems, where very few low-income workers become eligible for minimum pensions. This exercise has some caveats. First, key to define the level of subsidies in pension systems is the need to define a counter-factual scenario. Establishing what is a fair annuity that workers should receive given the level of contributions is a central question that countries should clearly establish. However, this rarely happens, and assumptions need to be made. Second, we focus on the redistribution impact that occurs within the main contributory pension systems. To fully assesses the distributional impact of pension programs from a lifetime perspective requires longitudinal data, which not only tracks individuals over the entirety of their adult lives but also includes all the necessary information for computing individuals’ other tax liabilities and for determining their eligibility for different transfers as well as other sources of financing of pension systems. Even in the few countries where sufficiently long-running administrative or longitudinal survey data are available, not all include all the information needed. Third, the exercises proposed here do not consider the behavioral responses of workers to the incentive provided by the parameters in the systems. For instance, we do not allow individuals to work after the minimum retirement age, even though some workers do to qualify or obtain a higher pension. Fourth, there are redistributive elements that have not been considered in this analysis, such as the impacts of differential mortality across income groups. In developed countries there has been increasing awareness of the large differences in mortality by socioeconomic status (Chetty et al., 2016), which can give rise to additional redistribution of pension wealth. Finally, it is important to note that while the focus of this paper is on within-generation redistribution and there is considerable evidence that inter- 29 generational redistribution of pension systems has been substantial, with early generations usually benefiting with high returns to contributions (Liebman 2001, Morató and Musto, 2010). Pension systems can be designed to be more progressive. First, countries can reduce or eliminate the minimum number of years required to access benefits and provide a proportional benefit, this would eliminate the implicit tax workers who do not become eligible for pension because of their reduced number of contributions. These tend to be low-income workers. Second, countries can establish a more direct link between contributions and benefits. For instance, determining benefits that are the result of a notional equilibrium return that is linked to a sustainability formula. This would reduce the overall subsidies that the systems provide, but particularly in the upper part of the income distribution. Finally, direct subsidies through the pension system could be made explicit and targeted towards the lower part of the income distribution. One way of doing this is through well targeted non-contributory pensions or subsidies to the contribution of low-income workers. As this paper shows, current levels of non-contributory pensions can make important improvements in the redistribution properties of pension systems in the region if subsidies are directed to the poorest individuals. One of the key implications is that countries could devise methodologies to gain a better understanding of how their pension systems affect income or wealth distribution. This knowledge can be valuable for policymakers in assessing the fairness and effectiveness of their pension programs and making informed decisions about potential reforms, given a desired level of redistribution. Without reforms, aging implies complex dynamics for redistribution. In defined benefit systems, longer life expectancies imply increasing level of subsidies and given the current distribution of subsidies in many countries, increasing inequities. For individual capitalization systems, longer lives imply a reduction in replacement rates (as with the same level of capital accumulated annuities will be lower). This will be an unpopular outcome and will call into question their social sustainability. In the absence of changes, this could also lead to more subsidies since it will be more difficult to achieve the necessary capital to attain a minimum pension. In this context, inaction is not an option for public policymakers in the face of the challenges presented by pension systems. 30 Bibliography Aaron, H. (1966). The Social Insurance Paradox. The Canadian Journal of Economics and Political Science / Revue Canadienne D’Economique Et De Science Politique, 32(3), 371-374. doi:10.2307/139995. Alaimo, V., Bosch, M., Kaplan, D. S., Pagés, C., & Ripani, L. (2016). Empleos para crecer. Washington, D.C.: Inter-American Development Bank. Altamirano, A., S. Berstein, M. Bosch, M. García Huitrón, M. L. Oliveri, 2018. 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OECD/IDB/The World Bank (2014), Pensions at a Glance: Latin America and the Caribbean, OECD Publishing. Piketty, T. (2014). Capital in the 21st Century. Belknap Press: An Imprint of Harvard University Press. 32 Queisser, M., & Whitehouse, E. R. (2006). Neutral or Fair? OECD Social, Employment and Migration Working Papers. Paris: OECD. Rofman, R., Apella, I., & Vezza, E. (2013). Más allá de las pensiones contributivas. Catorce experiencias en América Latina. World Bank. Information System on Labor Markets and Social Security (SIMS). Inter-American Development Bank, 2017. Available at: https://www.iadb.org/en/sector/social-investment/sims/home. 33 Appendix I: Baseline scenario, hypothetical workers and key terms To estimate the indicators proposed in this document, assumptions need to be made about hypothetical workers. We start from a baseline scenario with two hypothetical employees: man and woman, both married. In both cases, the man is 3 years older than the woman. Both have contributed throughout their working lives since the age of 20. Both retire at the minimum retirement age between approximately 2030 and 2040 under the rules in force in their country9, with an average salary of the formal worker that has been growing in real terms by 2%.10 Table A1 summarizes the characteristics of these two individuals. Although in regulatory terms some countries do use unisex mortality tables, in all our calculations we use gender differentiated mortality tables. In the case of defined benefit systems, the difference in life expectancy does not necessarily affect the replacement rate (the level of the pension), but it does affect the system's implicit rate of return and implicit subsidies. For a fixed replacement rate, a longer life expectancy involves greater internal rates of return (and subsidies). Similarly, the differences between single and married men and women stem from the fact that, for married women and men, benefits do not terminate with the death of one spouse, but with the death of both. This fact, which does not affect replacement rates, greatly impacts the internal rates of return and subsidies, given that the average time of receipt of the pension increases.11 Table A1: Characteristics of hypothetical workers in the baseline scenario Indicator Married man Married woman Year of retirement 2030-2040 2030-2040 Spouse's age Three years younger Three years older Age of beginning of working life 20 20 Age of retirement Minimum retirement age established for men (RM) Minimum retirement age established for women (R W ) Years contributed/Density of contribution 100% 100% Salary at the time of retirement Average formal salary Average formal salary Real salary increase 2% 2% Survival benefits Yes Yes Real interest rate 3.5% 3.5% Annuity rate 2% 2% 9 This is an important simplifying assumption because many social security systems include early/late retirement schemes, or schemes that are specific to certain economic activities (in addition to gender considerations), which impede a regional comparative analysis. 10 Harmonized household surveys in the Labor Markets and Social Security Information System (SIMS for its acronym in Spanish) show that the real income growth of formal workers was 1.7% between 1990 and 2016. 11 The distribution of marital status for people over the age of 65 indicates that high rates of marital union and widowhood remain among older adults in the region. Considering both formal and consensual unions as marital unions, 52.7% of people aged 65 or older declared being married, while 29.9% declared they were widowers (SIMS, 2015). 34 Key Terms Defined Benefit (DB). In these systems, pensions are determined based on the worker's contribution history. Benefits can be established based on the last salary or on a longer period (for example, the last five or ten years of contributions). Defined Contribution (DC). In these systems, the pension is determined based on assets accumulated by an individual during his working life. Benefits can be withdrawn all at once, through scheduled withdrawals, or through an annuity that provides a monthly income until the end of the individual's life. Non-contributory pensions (NCP) These pension benefits do not depend on any type of contribution by the individual. They can be granted universally, as in Bolivia, or be focused, for example on the condition of a certain level of income or excluding contributory pensions (normally, the State establishes a pension and determines its adjustment over time). Contribution density. Represents the percentage of effective contributions made by the worker to social security in relation to the contributions that would have been made in an ideal scenario where the worker contributes every month of his/her active labor life. In our baseline scenario, a density of 100% is assumed in all cases. Rate of return. It is the rate used to capitalize workers’ contributions towards the system during their active working life to determine the present value of pension benefits. In the case of defined contribution pension systems, it is relevant for the calculation of adequacy indicators, although it has also been used to evaluate the implicit rate of return of defined benefit schemes (for comparative purposes). Longevity risk. In defined benefit systems and in the case of annuities in defined contribution systems, pension providers commit to making payments to their insured for as long as they live. The longevity risk occurs when the provision of capital made by the pension provider is not consistent with the costs associated with unexpected life expectancy. In other words, it arises when the insured outlive their life expectancy. Mortality rate. The probability that an individual, upon reaching age x, dies during the course of the year that begins on that date. The set of these probabilities is known as "mortality tables" and expresses group or national survival probabilities by age. Financial risk. Derives from the dependency that pension savings have on the profitability that is obtained from their investment in financial markets, where volatility can produce rates that can even be negative. Annuity rate. Implicitly represents the cost of annuities when used to calculate the present value of a projected series of benefit payments. Increasing the annuity rate makes the provision of annuities more expensive since it implies greater precautions against the longevity risk; reducing it implies the opposite. 35 Annuity Factor (AF). The capital that the affiliate needs to finance a monetary unit of pension, from the moment of retirement until a certain time, based on the life expectancy of the affiliate (and of his/her dependents) and the profitability expectations of the pension administrator. Life annuity. A type of pension or contract that grants its beneficiary a fixed periodic payment (pension) during his/her lifetime. Programmed withdrawal. A pension modality in which capital saved by the worker is distributed in periodic payments, which are calculated each year based on the balance of the retirement fund, the profitability of the funds, and the annuity rate, among other criteria. It does not offer pension benefits until the pensioner’s death, and the amount of the pension tends to decrease over time. Minimum and maximum contribution base. It refers to the wage base upon which the contributions are calculated. If the salary is lower than the minimum base (usually associated with the minimum wage), the worker has no obligation to contribute; on the other hand, if it is greater than the maximum, the contribution rate is only applied up to said limit. These parameters are considered invariant throughout the worker's active life. Minimum and maximum pension. In most systems, a minimum pension is established when the age and contribution density requirements are met, and some also establish a maximum amount. In many cases, the minimum pension matches the minimum wage. Spouse survivor’s benefit. In the event of the insured's death, some systems/countries allow the spouse and/or his/her dependents to continue receiving the benefits under some conditions. In some of the region's countries, the beneficiary spouse receives 100% of the deceased individual’s pension, although that percentage is usually much lower (40% -70%) and includes restrictions depending on the age and socioeconomic level of the surviving dependent. 36 Appendix II: Additional results by Country and Gender Table A2: Country-level replacement rates by income level Replacement rates (%) Times the average formal wages Country (system) 0.75 1 1.5 2 3 Antigua & Barbuda (DB) 0.481 0.481 0.481 0.481 0.453 Argentina (DB) 0.956 0.863 0.771 0.724 0.678 Barbados (DB) 0.577 0.577 0.577 0.562 0.386 Bahamas (DB) 0.577 0.577 0.577 0.577 0.577 Belize (DB) 0.588 0.588 0.588 0.530 0.353 Bolivia (DC) 0.314 0.236 0.182 0.181 0.181 Brazil (DB) 0.878 0.711 0.545 0.461 0.378 Chile (DC) 0.458 0.384 0.310 0.273 0.244 Colombia (DB) 0.735 0.735 0.732 0.730 0.726 Colombia (DC) 0.652 0.489 0.326 0.270 0.265 Costa Rica (DB) 0.745 0.745 0.731 0.716 0.685 Costa Rica (DB+DC) 0.865 0.865 0.851 0.835 0.805 Ecuador (DB) 0.999 0.985 0.971 0.965 0.958 El Salvador (DB) 0.751 0.564 0.505 0.505 0.505 El Salvador (DC) 0.513 0.385 0.256 0.208 0.190 Guatemala (DB) 0.673 0.673 0.673 0.622 0.414 Guyana (DB) 0.588 0.588 0.588 0.550 0.367 Haiti (DB) 0.306 0.306 0.306 0.306 0.306 Honduras (DB) 0.615 0.461 0.307 0.231 0.154 Jamaica (DB) 0.448 0.341 0.234 0.180 0.124 Mexico (DB) 1.068 1.068 1.068 1.068 1.068 Mexico (DC) 0.348 0.308 0.269 0.249 0.230 Nicaragua (DB) 0.962 0.765 0.765 0.765 0.765 Panama (DB) 0.775 0.775 0.775 0.775 0.753 Panama (DB+DC) 0.841 0.884 0.926 0.865 0.656 Paraguay (DB) 0.981 0.981 0.981 0.981 0.981 Peru (DB) 0.551 0.414 0.276 0.207 0.138 Peru (DC) 0.344 0.344 0.344 0.344 0.344 Surinam (DB) 0.739 0.739 0.739 0.739 0.739 Trinidad & Tobago (DB) 0.743 0.557 0.387 0.381 0.298 Uruguay (DB) 0.491 0.491 0.491 0.440 0.389 Uruguay (DB+DC) 0.649 0.649 0.649 0.583 0.518 Dominican Republic (DC) 0.615 0.461 0.038 0.231 0.213 Source: Authors calculations based on Altamirano et al., 2018, updated. 37 Table A3: Country-level monetary subsidies by income level Implicit subsidies (2022 PPP US$) Times the average formal wages Country (system) 0.75 1 1.5 2 3 Antigua & Barbuda (DB) 32,597 43,462 65,193 86,924 102,979 Argentina (DB) 42,268 39,561 34,148 28,735 17,908 Barbados (DB) 30,784 41,046 61,569 73,915 -25,468 Bahamas (DB) 137,108 182,811 274,217 365,622 548,433 Belize (DB) 28,540 38,053 57,080 59,812 16,195 Bolivia (DC) 63,684 34,776 1,415 0 0 Brazil (DB) 28,615 -41,494 -160,996 -273,063 -269,814 Chile (DC) 84,151 75,088 56,963 38,838 15,055 Colombia (DB) 127,717 170,289 253,921 318,259 471,336 Colombia (DC) 115,731 89,447 36,877 4,162 0 Costa Rica (DB) 168,897 225,196 326,635 419,642 581,849 Costa Rica (DB+DC) 197,356 263,142 388,129 508,142 734,124 Ecuador (DB) 345,254 452,469 666,901 881,333 1,310,196 El Salvador (DB) 106,540 78,094 87,081 116,108 174,162 El Salvador (DC) 82,956 66,956 34,954 12,898 0 Guatemala (DB) 125,366 167,154 250,731 301,341 256,786 Guyana (DB) 44,944 59,925 89,887 95,536 -23,474 Haiti (DB) 381 508 762 1,015 1,523 Honduras (DB) 106,356 101,484 91,742 81,999 62,513 Jamaica (DB) 20,607 13,248 -1,469 -16,187 -33,935 Mexico (DB) 252,369 336,492 504,737 672,983 1,009,475 Mexico (DC) 0 0 0 0 0 Nicaragua (DB) 98,940 87,430 131,146 174,861 262,291 Panama (DB) 268,860 358,480 537,720 716,961 1,030,063 Panama (DC) 0 0 0 0 0 Paraguay (DB) 101,054 134,738 202,107 269,476 404,215 Peru (DB) 26,145 -8,033 -76,391 -144,749 -281,464 Peru (DC) 0 0 0 0 0 Surinam (DB) 10,507 14,010 21,014 28,019 42,029 Trinidad & Tobago (DB) 126,256 100,739 58,606 75,402 19,236 Uruguay (DB) -9,820 -13,093 -19,640 -75,445 -281,468 Uruguay (DC) 0 0 0 0 0 Dominican Republic (DC) 92,054 75,811 43,323 10,836 0 Source: Authors calculations based on Altamirano et al., 2018, updated.