Pension Reform in the Czech Republic - A Contribution into the Debate

Abstract

Abs tract:The pa per is con cerned with pen sion re form in the Czech Re pub lic and abroad. It ar gues against two opin ions: on the one hand, it is not nec es sary to do any thing, and on the other hand, that a man da tory funded sys tem should be im ple mented. Both ap proaches are false be cause of cre at ing over whelm ing ex plicit debts. The au thor rec om mends an evo lu tion ary ap proach based on de creas ing PAYG in com bi na tion with voluntary savings.Keywords: pen sion re form, so cial se cu rity in sur ance, en dog e nous fer til ity, tran si tion, Ricardo-Barro hy poth e sis JEL Clas si fi ca tion: J26, D02, D91, H62 In tro ducti onThe cur rent de bate about the pen sion sys tem is tak ing place be tween two ex tremes: on the one side, there is a rel a tiv ist ap proach ac cord ing to which it is enough to make merely cos metic changes to the pen sion sys tem. On the other side, there are rad i cal propos als for privatisation of the pen sion sys tem based on man da tory pen sion funds. The pur pose of this pa per is to of fer an al ter na tive model of pen sion sys tem re form, which is more mean ing ful as well as more politically feasible.The pay-as-you-go pen sion fi nanc ing sys tem has sunk into a cri sis in the last years. The crit ics com plain that the PAYG sys tem is too rigid and that, as an achieve ment of a wel fare state, it con trib utes to high un em ploy ment, and that the pen sion in sur ance weak ens the stim uli to work and de creases the growth po ten tial of the econ omy (Schneider, 1998). The pay-as-you-go sys tem is an in sti tu tion, which may dis trib ute the cake more equally but limits the size of this cake.Econ o mists had not al ways held such a neg a tive opin ion. Dur ing the 1950s, most peo ple who ex pe ri enced two world wars and the Great De pres sion be lieved that the PAYG sys tem is use ful and cor rect (Breyer, 1989). In a sit u a tion when the growth of wages and pop u la tion ex ceeded the yield in the cap i tal mar ket, it seemed that the de ci -

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