The importance of long-term public finance sustainability in the context of current financial crisis is still seen as one of the basic factors of economic stability. Demographic development resulting in higher percentage of people in retirement age versus economically active people is one of the main risks. There is a growing pressure on expenditures of age-related systems. For this reason the pension scheme reforms are major issue in advanced countries. While some countries have chosen strictly regulated approach towards pension reform, some have given its citizens a choice whether to stay in the old system, or whether to switch to a new one. Such a decision is very complex and whenever the choice was implemented, many more workers switched to a new system than was expected. In this paper, the authors present a micro-based simulation model for the Czech Republic that allows them to model the individuals’ switching decision using several economic and behavioral factors within an old (PAYG DB) and new (FDC) systems. It allows them to estimate the proportion of people who would opt-out to a funded pillar. The authors´ results indicate that under the assumption of rationality and long run predictability of most parameters, only a small fraction of population would choose the multi-pillar scheme. However, this conclusion holds only under a full rationality. Once the authors relax this assumption, a wide range of switching strategies become viable. Therefore, the expectations that the switch will be popular cannot be based only on economic factors, but must also incorporate behavioral aspects, such as the risk of aversion.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Volume (Year): 59 (2009) Issue (Month): 4 (Oktober) Pages: 309-333 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF
Find related papers by JEL classification: H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions