Immigration and pension system in Portugal

Santos, Tânia Cristina Simões de Matos dos; Domínguez Fabián, Inmaculada

http://hdl.handle.net/10400.8/342

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Authors

Santos, Tânia Cristina Simões de Matos dos

Domínguez Fabián, Inmaculada

Abstract(s)

The Portuguese Pension System is submitted to two risks. Over the period 2005-2050, a decrease of workforce and an increase of old-age persons are eminent, which provide for the doubling of the dependency rate. As a result the system is not financially sustainable in the medium and long terms and it is expected that the system will enter in a growing deficit in 2015, when expenditures will overcome its revenues. Hence, the system is subject to a demographic risk (associated with the reduction of the fertility rates, the augmentation of the life expectancy and the increase of the dependency rate) and to a financial insolvency risk (motivated by the lack of equatorial correspondence of expenditures and revenues). Immigration could be a solution to the unsustainability of Pension Systems. This paper examines the role of immigration on resolving these two risks. We investigate, based on the European Economy (2006) projections about the impact of ageing on the public expenditure for the period 2005-50, the required immigrant flows that maintain the old-age dependency rate observed in 2004 and we calculate also the number of immigrants required to promote a null result for the Portuguese Pension System. We conclude that the number of immigrants that guarantees a null financial result is much lower than one that eliminates the demographic risk. Still, compared with forecasts of the European Economy (2006), these figures are substantially higher and show an upward trend during the period under review, therefore, contrary to the expected trend announced by that European entity. (JEL: H55, J11, J26)