Privatization And Pension Reform In Transition Economies
Given the beleaguered state of public social security systems in the former socialist countries of Eastern Europe, especially their massive and growing pension liabilities, some form of funded private pension scheme should be considered. Nominally high payroll taxes which cannot be collected under weak revenue systems jeopardize any publicly-funded safety net pensioners. On the other hand, if these taxes are collected, they may raise wage costs to a level which discourages the growth of the private sector. Some portion of the assets of state enterprises to be privatized should be used to partially offset state’ pension liabilities. Professionally-managed private pension plans, initially funded by newly privatized assets, could assist in the transition to market economies by contributing to the development of capital markets in these countries. Furthermore, linking the process of privatization with the creation and funding of private pension funds would create dispersed private ownership, and substantially alleviate the problem of selling or distributing hard-to-value-state assets.
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