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Unexpected Inflation and Public Pensions: The Case of Hungary

Author

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  • András Simonovits

    (Centre for Economic and Regional Studies, BME MI)

Abstract

Public pensions are indexed to prices or wages or to their combinations; therefore, the impact of inflation on the real value of benefits can often be neglected, especially under indexation to prices. At high and accelerating/decelerating inflation like currently prevailing in Hungary, however, this is not the case. (i) With fast inflation of basic necessities, proportional indexation of benefits in progress devalues the lowest benefits, paying for above-the-average consumption share of these goods. (ii) Annual, lumpy raises in these benefits imply too high intra-year drop in the real value of benefits. (iii) With accelerating inflation, the declining real value of delayed initial benefits may incite immediate retirement. (iv) With unindexed parameter values (like progressivity bending points), the initial benefits' structure unintentionally changes.

Suggested Citation

  • András Simonovits, 2023. "Unexpected Inflation and Public Pensions: The Case of Hungary," CERS-IE WORKING PAPERS 2306, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:2306
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    References listed on IDEAS

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    1. Stefan Domonkos & András Simonovits, 2017. "Pension reforms in EU11 countries: An evaluation of post‐socialist pension policies," International Social Security Review, John Wiley & Sons, vol. 70(2), pages 109-128, April.
    2. András Simonovits, 2003. "Modeling Pension Systems," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-59769-3.
    3. Stanley Fischer, 1982. "Adapting to Inflation in the United States Economy," NBER Chapters, in: Inflation: Causes and Effects, pages 169-188, National Bureau of Economic Research, Inc.
    4. András Simonovits, 2003. "Modeling Pension Systems," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-4039-3845-9.
    5. Andras Simonovits, 2020. "Indexing public pensions in progress to wages or prices," CERS-IE WORKING PAPERS 2015, Institute of Economics, Centre for Economic and Regional Studies.
    6. Barr, Nicholas & Diamond, Peter, 2008. "Reforming Pensions: Principles and Policy Choices," OUP Catalogue, Oxford University Press, number 9780195311303.
    7. András Simonovits, 2020. "Indexing Public Pensions in Progress to Wages or Prices," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 12(2), pages 171-194, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    inflation; public pensions; indexation; progressivity of initial benefits; delayed retirement;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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