Publication detail

Political Risk of Social Security: Evidence from Reforms in Hungary and the Czech Republic

Author(s):
Type: Article in collection
Year: 2008
Number: 0
ISSN / ISBN:
Published in: zbornik z konference Vyskumneho zameru 2007
Publishing place: Praha
Keywords: social security, policy risk, pension reforms
JEL codes: H55, G32, P35
Suggested Citation:
Grants: IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development
Abstract: We document the political risk of social security in Hungary and the Czech Republic by
measuring the changes in the social security wealth induced by the pension reforms
undertaken in these countries since the 1990s. Methodologically we follow upon McHale’s
(2001) study of selected reforms in G7 countries. We compute the changes in social security
wealth separately for representative male and female workers in all age cohorts and different
educational categories. Our results therefore provide more comprehensive picture of the
differential impacts of pension reforms on different workers. The Czech 1996 reform reduced
the social security wealth of almost all workers by the magnitude of 2 to 3 annual average
earnings. The negative impact was more pronounced for women but was distributed fairly
equally across cohorts and income levels. In Hungary, the early (1993 and 1997) reforms had
negative impact on workers near the retirement age. The 1998 reform which introduced a
privately funded second pillar was highly advantageous for middle-aged and young men with
university education but had a negative impact on most other workers, and exposed workers
to additional uncertainty about future taxation of benefits. Overall, the paper documents that
pay-as-you-go system is not a predictable source of income since legislative reforms,
particularly in the Hungarian case, do frequently change the future taxes and benefits in
different directions for different people.

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