Pension Privatization and Country Risk

Cuevas, Alfredo; Gonzalez, Maria de los Angeles; López-Marmolejo, Arnoldo; Lombardo, Davide

doi:10.5089/9781451870534.001

Cited by 9 publications

(6 citation statements)

References 8 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The results of savings regressions are in line with Schwarz and Arias's (2014) suggestions that debt-financed transition is unlikely to increase savings. Regarding possible detrimental growth effects, we note the possibility of deteriorating investor confidence, since explicit public debt is treated less favorably than the implicit pension debt (Cuevas et al ., 2008). Overall, we can conclude that the lack of political support for the strict and long-lasting austerity measures required to preclude the emergence of disguised-PAYG financing severely undermines the feasibility of carve-out pension privatization.…”

Section: Implications For Policymakingmentioning

confidence: 99%

Does pension privatization increase economic growth? Evidence from Latin America and Eastern Europe

Altiparmakov¹,

Nedeljković

2016

Journal of Pension Economics and Finance

View full text Add to dashboard Cite

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.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Analyses of pension funding effects on economic growth need to differentiate between 'carveout' pension privatization in Latin America and Eastern Europe and typical 'add-on' pension funding in Western Europe and North America. We find no evidence that pension privatization in Latin America and Eastern Europe was associated with higher economic growth. The result is robust across both continents and several alternative econometric specifications. Positive growth effects are particularly unlikely in countries resorting to debt-financed privatization. Furthermore, we note the lack of positive pension privatization effects on savings in Eastern Europe, with limited evidence of positive savings effects in Latin America. These findings suggest that cost-containment parametric reforms should be given priority over carve-out pension privatization when considering options for restoring financial sustainability of public Pay-As-You-Go systems. Terms of use: Documents inJEL-Codes: J320, G280, H550, C230.

show abstract

Section: Implications For Policymakingmentioning

confidence: 99%

Does pension privatization increase economic growth? Evidence from Latin America and Eastern Europe

Altiparmakov¹,

Nedeljković

2016

Journal of Pension Economics and Finance

View full text Add to dashboard Cite

show abstract

“…4. While some privatization proponents look favourably at this transformation of the implicit pension debt into explicit public debt, the fact is that financial markets and rating agencies treat public debt less favourably than the implicit pension debt (Cuevas et al, 2008).…”

Section: The Myth Of Pension Privatization and Accelerated Economic G...mentioning

confidence: 99%

The 2022 Greek pension reform: The rebirth of carve‐out privatization in Eastern Europe

Altiparmakov¹

2023

Int Social Security Review

View full text Add to dashboard Cite

After a decade of unprecedented austerity, Greece abruptly changed the course of pension consolidation in 2022 and implemented the controversial carve-out pension funding approach, whereby a portion of existing pay-as-you-go (PAYG) contributions are diverted to fund individual pension savings, thus undermining the financing of existing PAYG pensions. Although inspired by the World Bank's 1994 pension privatization blueprint, the Greek 2022 reform features a major policy shift by entrusting the management of individual pension savings to a dedicated government body, ostensibly to try to remedy inherent market failures in private pension provision. Like earlier reforms in Eastern Europe, the multi-decade transition costs of carve-out funding have been vastly underestimated in Greece, which will give rise to fiscal distress in the coming years when annual transition costs become sizeable and favourable international financing terms start to change. Unless firm political commitment is established to implement the measures necessary to finance the transition costs, Greece may have to resort to reform reversals similar to those already implemented across Eastern Europe.

show abstract

“…In addition, switching from disguised-PAYG financing to the traditional PAYG system reduces public debt and precludes future debt-creation inherent in disguised-PAYG financing, which can, in turn, positively affect the business environment since private investors and capital markets treat public debt less favorably than the implicit pension debt (Cuevas et al, 2008).…”

Section: Dynamic Inefficiency Of Second Pillar Fundsmentioning

confidence: 99%

25 years of averting the old age crisis in Eastern Europe

Altiparmakov¹,

Nedeljković²

2021

Global Social Policy

View full text Add to dashboard Cite

The influential World Bank Averting the old-age crisis study profoundly influenced pension policies around the globe, but nowhere more so than in Eastern Europe. While Western Europe dismissed radical carve-out pension privatization initiatives, Eastern European countries with similar Pas-As-You-Go legacies pursued World Bank reforms hoping to increase retirement incomes, spur economic growth, and hedge political risks inherent in public systems. However, 25 years later, reversals are taking place in all reforming countries, ranging from outright dismantling of mandatory private pension funds to their scaling-down and moving to voluntary participation. Empirical evidence presented in this article suggests that carve-out privatization failed to accelerate economic growth, while private pension funds turned out to be dynamically inefficient and inferior to PAYG systems they were intended to replace. We argue that the carve-out approach is the root cause of inherent economic and fiscal tension between public and private pension pillars. We identify a minimum set of Pareto improving reform adjustments that address the most pressing sources of economic inefficiencies and political instability by undoing the carve-out financing. The suggested re-reforms would be a first step in enabling private pension funds in Eastern Europe to become a meaningful supplement to existing PAYG benefits, in line with typical pension practices in Western Europe.

show abstract

Pension Privatization and Country Risk

Cited by 9 publications

References 8 publications

Does pension privatization increase economic growth? Evidence from Latin America and Eastern Europe

Does pension privatization increase economic growth? Evidence from Latin America and Eastern Europe

The 2022 Greek pension reform: The rebirth of carve‐out privatization in Eastern Europe

25 years of averting the old age crisis in Eastern Europe

Contact Info

Product

Resources

About