Changes in the Implicit Debt Burden of the Hungarian Social Security System

The paper studies the implicit debt burden of the Hungarian social security system, and especially its changes after certain real and hypothetical reform measures. It uses a computer simulation of a demographic model. The most important results are the following. The Hungarian implicit debt burden, prior to the 1998 reform, was quite substantial but not extraordinarily high in an international comparison. As the result of the implemented reforms, it has decreased from 100% of 1995 GDP to roughly 40% of it. This is equivalent to a permanent budget cut of approximately 1.5% of GDP per year. If we smooth the cyclicality of the late 90s less, then these measures are even better. Considering further reform scenarios, the only promising direction (let alone the unrealistic 5% improvement in revenue collection) was the decrease of the size of the first (PAYG) pillar of pensions. Cutting contribution rates (which is a current policy proposal) seems absolutely infeasible from a long-run perspective.