5 years ago

Financial forecasts accuracy in Brazil’s social security system

Solon Venâncio de Carvalho, Claudio Alberto Castelo Branco Puty, Carlos Renato Lisboa Francês, Marcelino Silva da Silva, Carlos Patrick Alves da Silva

by Carlos Patrick Alves da Silva, Claudio Alberto Castelo Branco Puty, Marcelino Silva da Silva, Solon Venâncio de Carvalho, Carlos Renato Lisboa Francês

Long-term social security statistical forecasts produced and disseminated by the Brazilian government aim to provide accurate results that would serve as background information for optimal policy decisions. These forecasts are being used as support for the government’s proposed pension reform that plans to radically change the Brazilian Constitution insofar as Social Security is concerned. However, the reliability of official results is uncertain since no systematic evaluation of these forecasts has ever been published by the Brazilian government or anyone else. This paper aims to present a study of the accuracy and methodology of the instruments used by the Brazilian government to carry out long-term actuarial forecasts. We base our research on an empirical and probabilistic analysis of the official models. Our empirical analysis shows that the long-term Social Security forecasts are systematically biased in the short term and have significant errors that render them meaningless in the long run. Moreover, the low level of transparency in the methods impaired the replication of results published by the Brazilian Government and the use of outdated data compromises forecast results. In the theoretical analysis, based on a mathematical modeling approach, we discuss the complexity and limitations of the macroeconomic forecast through the computation of confidence intervals. We demonstrate the problems related to error measurement inherent to any forecasting process. We then extend this exercise to the computation of confidence intervals for Social Security forecasts. This mathematical exercise raises questions about the degree of reliability of the Social Security forecasts.

Publisher URL: http://journals.plos.org/plosone/article

DOI: 10.1371/journal.pone.0184353

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