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A Comment on the Place of Funded Pensions in Transition Economies


  • de Menil, G.


Arguments are presented in the case of Eastern European transition countries for combining the restructuring of insolvent pay-as-you-go retirement systems with the introduction of mandatory, private, funded pensions. They involve the reduction of dead-weight loss, the return to formal activity of gray markets, and the development of capital markets. With the proper financing, such policies can also increase national savings. Lack of public knowledge about financial instruments for saving argues for making participation in the private funds mandatory. A combination of a reformed pay-as-you-go system with private, mandatory funds balances concern for political risk and real wage variability with concern for the variability of real financial returns. An important caveat is in order. Implementing such a policy requires a capacity for effective enforcement of prudencial regulations and a commitment to macroeconomic stability. If these are not present, reform should be limited to restoring balance to the pay-as-you-go system.

Suggested Citation

  • de Menil, G., 2000. "A Comment on the Place of Funded Pensions in Transition Economies," DELTA Working Papers 2000-04, DELTA (Ecole normale supérieure).
  • Handle: RePEc:del:abcdef:2000-04

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    References listed on IDEAS

    1. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
    2. Martin Feldstein, 1995. "Would Privatizing Social Security Raise Economic Welfare?," NBER Working Papers 5281, National Bureau of Economic Research, Inc.
    3. Peter A. Diamond, 1997. "Macroeconomics Aspects of Social Security Reform," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 1-88.
    4. Peter A. Diamond (ed.), 1999. "Issues in Privatizing Social Security: Report of an Expert Panel of the National Academy of Social Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262041774, July.
    5. Georges de Menil & Eytan Sheshinski, 2002. "Romania's Pension System: From Crisis to Reform," NBER Chapters,in: Social Security Pension Reform in Europe, pages 401-438 National Bureau of Economic Research, Inc.
    6. A. B. Atkinson, 1999. "The Economic Consequences of Rolling Back the Welfare State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011719, July.
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    Cited by:

    1. Svend E. Hougaard Jensen & Jukka Lassila, 2002. "Reforming Social Security in a Transition Economy: The Case of Lithuania," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(1), pages 17-36.
    2. Viorel Craciuneanu & Daniel Stefan, 2015. "Budget Level of Social Security Pension in Romania Compared to Social Aid Established by the Legislator," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 7(1), pages 116-121, March.
    3. Georges de Menil & Eytan Sheshinski, 2002. "Romania's Pension System: From Crisis to Reform," NBER Chapters,in: Social Security Pension Reform in Europe, pages 401-438 National Bureau of Economic Research, Inc.

    More about this item



    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems


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