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Implicit Public Debt of the Czech Social-Security System

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Author Info

  • Ondrej Schneider

Abstract

The Czech social-security system is hampered by the ageing population, similarly as all European systems. The discussion of remedies is still very rudimentary. Pro-reform arguments concentrate on the non-sustainability of the current system in the long term and on the miserable returns the system produces for the taxpayers. Funded systems are consequentially quoted as a viable alternative. The main argument of the non-reformers, on the contrary, rests with the sky-high costs of such a reform and on the societal instincts that may clash within an attempt. In this paper, we try to carry out an objective and comprehensive appraisal of the implicit debt of the Czech social-security system. Such an estimate would be crucial if a reform, at least partially based on the switch to a funded system, were to be conceived. Currently, the government is considering no such reform. Therefore, for the short-term fiscal outlook, costs of unreformed system should be taken into account. In a longerterm, though, future governments will have to deal with the pension system and implement some aspects of the pension reform. We show that the current social-security system based on the PAYG principle is heavily indebted, though the debt is thus far .implicit.. Taken all parts of the system together, the Czech social security system has accumulated debt in excess of 250% GDP, level similar to other European countries. The debt level is, indeed sensitive to the valorisation coefficient. Should the future governments apply very restrictive policies and keep social security benefits fixed in real terms, the overall implicit debt would decrease to 199% of GDP. On the other hand, more generous valorisation by 4% in real terms would lift the implicit debt to 324% of GDP.

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Bibliographic Info

Paper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0167.

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Length: 24 Pages
Date of creation: 1999
Date of revision:
Handle: RePEc:sec:cnstan:0167

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Related research

Keywords: Public Debt; Czech Republic; Social Security System;

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Cited by:
  1. Petr Hedbávný & Ondřej Schneider & Jan Zápal, 2004. "Does the Enlarged European Union Need a Better Fiscal Pact?," Working Papers IES 55, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2004.
  2. Petr Hedbávný & Ondrej Schneider & Jan Zápal, 2005. "A Fiscal Rule that has Teeth: A Suggestion for a ‘Fiscal Sustainability Council’ underpinned by the Financial Markets," CESifo Working Paper Series 1499, CESifo Group Munich.
  3. Stanislaw Gomulka, 1999. "Comparative Notes on Pension Developments and Reforms in the Czech Republic, Hungary, Poland and Romania," CASE Network Studies and Analyses 0182, CASE-Center for Social and Economic Research.

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