Macroeconomic Effects of Social Security Privatization in a Small Unionized Economy

This paper analyses the effects of a pension system privatization in a unionized economy. Using an overlapping-generations framework we show that in an environment characterized by unemployment, a reform towards a private pension system in the steady state may result in lower levels of employment and capital stock. In this case even if the privatization increases the welfare of all future generations, the reduction in the welfare of the elderly due to reduced pension benefits may be greater and a Pareto improving transition to a private system may not be feasible. On the other hand if the reform leads to higher employment then a Pareto-improving pension privatization scheme can be constructed.public pensions, social security privatization, labour union, unemployment

Fertility, human capital accumulation, and the pension system

This paper provides a unified treatment of externalities associated with fertility and human capital accumulation within pas-as-you-go pension systems. It considers an overlapping generations model in which every generation consists of high earners and low earners with the proportion of types being determined endogenously. The number of children is deterministically chosen but the children’s future ability is in part stochastic, in part determined by the family background, and in part through education. In addition to the customary externality source associated with a change in average fertility rate, this setup highlights another externality source. This is due to the effect of a parent’s choice of number and educational attainment of his children on the proportion of high- ability individuals in the steady state. Our other results include: (i) Investments in education of high- and low-ability parents must be subsidized; (ii) direct child subsidies to one or both parent types can be negative; i.e., they can be taxes; (iii) net subsidies to children (direct child subsidies plus education subsidies) to at least one type of parents must be positive; (iv) parents who have a higher number of children should invest less in their education.pay-as-you-go social security, endogenous fertility, education, endogenous ratio of high to low ability types, three externality sources, education subsidies, child subsidies

A Macro Analysis of China Pension Pooling System: Incentive Issues and Financial Problem

Over a decade-long of pension reform in China has became much more critical in recent years. Problems of pension reform have started to reveal rapidly and pension reform pace has apparently slowed down. One sign of this is the decision made by the government to suspend a sell off of state-held shares in listed companies to fund the pension shortfall in October of 2001. The pension system built on 1995-reform platform has run into three major problems. First is a huge amount of unfunded pension liabilities inherited from the old system, and second is fragmentation of pension system has increased difficulty to finance pension liabilities. Third is a lack of a capital market to invest pension fund for a higher rate of return. These problems were rooted in the beginning of the pension reform and crippled effective operation of provincial pooling system over the years. And related resulting effects are rising pension deficit, accumulating notional individual accounts, increasing enterprise noncompliance and evasions, declining program participation, continuing financial burden of state-owned enterprises (SOEs) and a fast increase in SOEs retirements, and increasing weakness in central government fiscal conditions. This paper focuses on the incentive problems under the provincial pooling arrangement and aims to understand on a macro-level how adverse effects of the incapability of separation the new system from the old pension liabilities have complicated pension reform process and generated a series of unintended reform problems. The study uses aggregate data from national statistical sources and published data by domestic analysts to analyze incentive issues of state and nonstate sector in the pooling system. The paper answered the three questions. How did individual accounts become notional in the recent years? Why are there widespread noncompliance and evasions among state-owned enterprises toward pension contribution? Why is the non-state sector representing only a small share in provincial pooling pension program? The evidences indicate that current provincial pooling system is in a vicious cycle, financial problems are serious and public confidence in the system is low. Declining share of state sector and low share of non-state sector in contributing to pension program at local levels show that government's approach of expanding pension coverage to solve pension fund shortage at least in short term is ineffective. The government is facing a stark dilemma. Incapable of separating the old pension liability from the current pension financing system has led to an accumulation of unfunded individual accounts. The unfunded pension system and lack of capital accumulation of pension fund have shaken the confidence of current contributors of state enterprises and scares away new contributors from private and foreign invested enterprises. However, limited coverage, low program participation and widespread noncompliance and evasion reduce its pension revenue collection, increase financing gap and in fact double the difficulty to finance the liability, and that would further scare away new contributors too. Caught between the rock and a hard place, the government will have to figure out the approach and structure a reform path that follows pension reform sequencing. First to solve the old pension liabilities through pushing for financial capital market development or by ensuring some sort of central government responsibility. Second, to build the public confidence in the success of the pension system and gain the cooperation and willingness of pubic and private interest in the system. With that in mind, the pension reform outcomes will be both credible and financially viable.

The impact of structural pension reforms on the macroeconomic performance: an empirical analysis

Whether pension reforms lead to an improvement in macroeconomic performance is a controversial question. Some countries, which have implemented reforms, claim better economic performance while in others a positive result has yet to be seen. This paper explores two aspects of this issue further: Firstly, we provide a comprehensive investigation of the impact of pension reforms on output, capital stock and consumption. Secondly, we attempt to uncover the factors which lead to cross country heterogeneity in the impact of reform. Our results suggest that pension reform led to an improvement in macroeconomic performance. However, there is also evidence to suggest that this improvement was more pronounced in countries with lower public debt, lower age dependency ratio, more developed financial markets and a higher rate of privatisations

Pension reform in Croatia

Croatia's transition toward independence, and the market economy in the 1990s, exacerbated problems in the pay-as-you-go (PAYG) system, and ultimately led to its financial collapse. Although a comprehensive three-pillar reform was initiated in late 1995, implementation of the reform only began in 1998, with an overhaul of PAYG parameters, including shifting to a German-style points system. Introduction of the mandatory, and voluntary funded pillars was announced in 1998, and implemented in 2002. The new system includes a privately-managed individual account scheme, with a contribution rate of five percent, in addition to a downsized pay-as-you-go, defined benefit component. This paper describes the design of the new system, and highlights areas where further refinements are needed.Pensions&Retirement Systems,Banks&Banking Reform,Environmental Economics&Policies,Public Sector Economics,Economic Stabilization

A Macro Analysis of China Pension Pooling System: Incentive Issues and Financial

Abstract Over a decade-long of pension reform in China has became much more critical in recent years. Problems of pension reform have started to reveal rapidly and pension reform pace has apparently slowed down. One sign of this is the decision made by the government to suspend a sell off of state-held shares in listed companies to fund the pension shortfall in October of 2001. The pension system built on 1995-reform platform has run into three major problems. First is a huge amount of unfunded pension liabilities inherited from the old system, and second is fragmentation of pension system has increased difficulty to finance pension liabilities. Third is a lack of a capital market to invest pension fund for a higher rate of return. These problems were rooted in the beginning of the pension reform and crippled effective operation of provincial pooling system over the years. And related resulting effects are rising pension deficit, accumulating notional individual accounts, increasing enterprise noncompliance and evasions, declining program participation, continuing financial burden of state-owned enterprises (SOEs) and a fast increase in SOEs retirements, and increasing weakness in central government fiscal conditions. This paper focuses on the incentive problems under the provincial pooling arrangement and aims to understand on a macro-level how adverse effects of the incapability of separation the new system from the old pension liabilities have complicated pension reform process and generated a series of unintended reform problems. The study uses aggregate data from national statistical sources and published data by domestic analysts to analyze incentive issues of state and nonstate sector in the pooling system. The paper answered the three questions. How did individual accounts become notional in the recent years? Why are there widespread noncompliance and evasions among state-owned enterprises toward pension contribution? Why is the non-state sector representing only a small share in provincial pooling pension program? The evidences indicate that current provincial pooling system is in a vicious cycle, financial problems are serious and public confidence in the system is low. Declining share of state sector and low share of non-state sector in contributing to pension program at local levels show that government's approach of expanding pension coverage to solve pension fund shortage at least in short term is ineffective. The government is facing a stark dilemma. Incapable of separating the old pension liability from the current pension financing system has led to an accumulation of unfunded individual accounts. The unfunded pension system and lack of capital accumulation of pension fund have shaken the confidence of current contributors of state enterprises and scares away new contributors from private and foreign invested enterprises. However, limited coverage, low program participation and widespread noncompliance and evasion reduce its pension revenue collection, increase financing gap and in fact double the difficulty to finance the liability, and that would further scare away new contributors too. Caught between the rock and a hard place, the government will have to figure out the approach and structure a reform path that follows pension reform sequencing. First to solve the old pension liabilities through pushing for financial capital market development or by ensuring some sort of central government responsibility. Second, to build the public confidence in the success of the pension system and gain the cooperation and willingness of pubic and private interest in the system. With that in mind, the pension reform outcomes will be both credible and financially viable

A Macro Analysis of China Pension Pooling System: Incentive Issues and Financial

Abstract Over a decade-long of pension reform in China has became much more critical in recent years. Problems of pension reform have started to reveal rapidly and pension reform pace has apparently slowed down. One sign of this is the decision made by the government to suspend a sell off of state-held shares in listed companies to fund the pension shortfall in October of 2001. The pension system built on 1995-reform platform has run into three major problems. First is a huge amount of unfunded pension liabilities inherited from the old system, and second is fragmentation of pension system has increased difficulty to finance pension liabilities. Third is a lack of a capital market to invest pension fund for a higher rate of return. These problems were rooted in the beginning of the pension reform and crippled effective operation of provincial pooling system over the years. And related resulting effects are rising pension deficit, accumulating notional individual accounts, increasing enterprise noncompliance and evasions, declining program participation, continuing financial burden of state-owned enterprises (SOEs) and a fast increase in SOEs retirements, and increasing weakness in central government fiscal conditions. This paper focuses on the incentive problems under the provincial pooling arrangement and aims to understand on a macro-level how adverse effects of the incapability of separation the new system from the old pension liabilities have complicated pension reform process and generated a series of unintended reform problems. The study uses aggregate data from national statistical sources and published data by domestic analysts to analyze incentive issues of state and nonstate sector in the pooling system. The paper answered the three questions. How did individual accounts become notional in the recent years? Why are there widespread noncompliance and evasions among state-owned enterprises toward pension contribution? Why is the non-state sector representing only a small share in provincial pooling pension program? The evidences indicate that current provincial pooling system is in a vicious cycle, financial problems are serious and public confidence in the system is low. Declining share of state sector and low share of non-state sector in contributing to pension program at local levels show that government's approach of expanding pension coverage to solve pension fund shortage at least in short term is ineffective. The government is facing a stark dilemma. Incapable of separating the old pension liability from the current pension financing system has led to an accumulation of unfunded individual accounts. The unfunded pension system and lack of capital accumulation of pension fund have shaken the confidence of current contributors of state enterprises and scares away new contributors from private and foreign invested enterprises. However, limited coverage, low program participation and widespread noncompliance and evasion reduce its pension revenue collection, increase financing gap and in fact double the difficulty to finance the liability, and that would further scare away new contributors too. Caught between the rock and a hard place, the government will have to figure out the approach and structure a reform path that follows pension reform sequencing. First to solve the old pension liabilities through pushing for financial capital market development or by ensuring some sort of central government responsibility. Second, to build the public confidence in the success of the pension system and gain the cooperation and willingness of pubic and private interest in the system. With that in mind, the pension reform outcomes will be both credible and financially viable