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The Crisis of Romania's Pension System : A Diagnosis, and an Analysis of the Proposed Cure


  • De Menil, G.
  • Sheshinski, E.


This paper describes the crisis of Romania's pension system , and analyses the reforms the government elected in 1996 is undertaking to resolve this crisis. Insolvency was principally due to demoralization of the system in the period following the collapse of Communism. Governments from 1990 to 1996 multiplied provisions for early retirement and increased benefit formulas. During the same period, the number of contributors fell by over a third, as workers migrated to the unofficial economy. The tax increases enacted to bridge the gap produced less and less revenue. In 1997, a new government made fundamental pension reform a program priority. It started by overhauling the public, pay-as-you-go system, notably by replacing an open-ended "best five of the last ten years" formula with a point system. It then further proposed the partial replacement of the public system by a mandatory, privately managed system of private accounts. The paper discusses the budgetary and economic effects of these reforms, and their relation to the development of capital markets.

Suggested Citation

  • De Menil, G. & Sheshinski, E., 2000. "The Crisis of Romania's Pension System : A Diagnosis, and an Analysis of the Proposed Cure," DELTA Working Papers 2000-10, DELTA (Ecole normale supérieure).
  • Handle: RePEc:del:abcdef:2000-10

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    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • P35 - Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance


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