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Pension Reform in Russia: A General Equilibrium Approach

  • Kuznetsov Artem

    ()

  • Ordin Oleg

    ()

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    This paper uses a classic, overlapping generation model to analyze the optimal transition of the Russian economy from a PAYG pension system to a funded pension system. The transition is associated with the accumulation of social capital gained by increased contributions to the pension system. The analysis of the two-period model defines the optimal rule for the choice of the present value of the pension package as a function of aggregate capital stock in the economy. In the numerical simulation, the large-scale dynamic model of the Russian economy is used to compare the welfare efficiency of three transition scenarios. All the scenarios assume that the economy shifts from a steady state with a PAYG pension system to a steady state with funded pensions though the speed of transition differs among the scenarios. The analysis suggests that transition to a funded pension system produces social welfare gains and allows one to choose the efficient transition trajectory. However, Pareto-improving transition is not achievable in the model since some age cohorts have to pay greater contributions to the pension system in order to initiate the accumulation of social capital.

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    Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 01-02e.

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    Length: 35 pages
    Date of creation: 12 Dec 2001
    Date of revision:
    Handle: RePEc:eer:wpalle:01-02e
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    1. Andrew B. Abel, . "The Social Security Trust Fund, the Riskless Interest Rate, and Capital Accumulation," Rodney L. White Center for Financial Research Working Papers 3-99, Wharton School Rodney L. White Center for Financial Research.
    2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
    3. Robert Holzmann, 1997. "Pension Reform, Financial Market Development, and Economic Growth: Preliminary Evidence from Chile," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 149-178, June.
    4. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
    5. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
    6. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," Review of Economic Studies, Oxford University Press, vol. 32(2), pages 137-150.
    7. Henning Bohn, 1997. "Social Security reform and financial markets," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 41(Jun), pages 193-227.
    8. 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.
    9. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
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