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

Listed author(s):
  • 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.

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Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2000-10.

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Length: 34 pages
Date of creation: 2000
Handle: RePEc:del:abcdef:2000-10
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