Abstract
Arguments are presented in the case of Eastern European transitioncountries for combining the restructuring of insolvent pay-as-you-goretirement systems with the introduction of mandatory, private,funded pensions. They involve the reduction of dead-weight loss,the return to formal activity of gray markets, and the developmentof capital markets. With the proper financing, such policiescan also increase national savings. Lack of public knowledgeabout financial instruments for saving argues for making participationin the private funds mandatory. A combination of a reformed pay-as-you-gosystem with private, mandatory funds balances concern for politicalrisk and real wage variability with concern for the variabilityof real financial returns.
Animportant caveat is in order. Implementing such a policy requiresa capacity for effective enforcement of prudencial regulationsand a commitment to macroeconomic stability. If these are notpresent, reform should be limited to restoring balance to thepay-as-you-go system.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Atkinson, A. B. (1999). The Economic Consequences of Rolling Back the Welfare State. The MIT Press.
Barr, N. (1999). “Reforming Welfare State in Post-Communist Countries”, Paper presented at the CASE International Conference: “Ten Years After.” October 15-16, Warsaw.
De Menil, G., E. Sheshinski. (2000). “Romania's Pension System: from Crisis to Reform.” Paper presented to an NBER-Kiel Institute of World Economics Conference entitled “Coping with the Pension Crisis-Where does Europe stand?” Berlin, March 21-22.
Diamond, P. A. (1965). “National Debt in a Neoclassical Growth Model.” American Economic Review 55, 1126-1150.
Diamond, P. A. (1997). “Macroeconomic Aspects of Social Security Reform.” Brookings Papers on Economic Activity 2: 1-66.
Diamond, P. A. (ed.). (1999). Issues in Privatizing Social Security. Report of an Expert Panel of the National Academy of Social Insurance. The MIT Press.
E. B. R. D. (1998). “Transition Report.” London.
Feldstein, M. S. (1995). “Would Privatizing Social Security Raise Economic Welfare?” NBER Working Paper 5281.
Feldstein, M. S. (1996). “The Missing Piece in Policy Analysis: Social Security Reform.” American Economic Review, Papers and Proceedings 86, 1-14.
Fisher, S., R. Sahay. (1999). “The Transition Economies After Ten Years.” Paper presented at the CASE International Conference: “Ten Years After”, October 15-16, Warsaw.
Iglesias, P. Augusto. (1999). “Economic Impact of Pension Reform in Chile.” Paper presented at the International Conference “Universal Pension Funds Systems”, May 19-20, Bucharest.
Kotlikoff, L., K. Smetters, and J. Walliser. (1998). “The Impact of Transiting to Privatized Social Security.” In H. Siebert (ed.), Redesigning Social Security. Mohr Siebeck: Tubingen.
Milanovic, B. (1998). “Income, Inequality and Poverty during the Transition from Plan to Market Economy.” Washington, D.C.: The World Bank.
Orszag, Stiglitz, J. (1999). “Rethinking Pension Reform: Ten Myths about Social Security Systems.” Paper presented at conference on “New Ideas about Old Age Security”, September 14-15, Washington D.C.: The World Bank.
Rutkowski, M. (1999). “Bringing Hope Back: Pension Reforms in Transition Economies.” Paper presented at the CASE International Conference: “Ten Years After”, October 15-16, Warsaw.
Sinn, H-W. (1999). [Pension Reform and Demographic Crisis]. “Why a Funded Pension System is Useful and Why It is Not Useful.” Paper presented at the 55th Congress of the International Institute of Public Finance, August 23-26, Moscow.
World Bank. (1994). Averting the Old Age Crisis: Policies to Protect the Old and Promote Growth. Oxford University Press.
World Bank. (1996). World Development Report 1996. From Plan to Market. Oxford University Press.
Rights and permissions
About this article
Cite this article
de Menil, G. A Comment on the Place of Funded Pensions in Transition Economies. International Tax and Public Finance 7, 431–444 (2000). https://doi.org/10.1023/A:1008768918855
Issue Date:
DOI: https://doi.org/10.1023/A:1008768918855