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Pension Reform in a Highly Informalized Post-Soviet Economy

  • A.V. Dobronogov
  • L.D. Mayhew

Pension reform is now on the national agenda in most post-Soviet countries. These countries have highly informalized economies, which means that large areas of economic activity go unreported to the authorities. This paper deals with the problem of pension reform in a highly informalized post-Soviet economy, Ukraine. It includes an analysis of causes and consequences of informalization, a general description and analysis of trends in the Ukrainian pension system, and a discussion of different approaches to reform. The paper describes an approach to modeling labor and capital flows between the formal and informal sectors using a gravity model. It also reports and discusses results of simulations of different scenarios of pension reform in Ukraine. Policy-relevant findings of the study are as follows: - Public trust in reform is crucial. Therefore, in designing and and implementing reforms exceptional attention should be paid to trust-building measures; - Debt-financed transition to a fully-funded pension system in an informalized post-Soviet economy can lead to higher efficiency gains than a tax-financed transition. This is due to an alleviation of the tax burden, which encourages a decline in unreported economic activity. - Provided that public trust in the reform is sufficient, the larger the fully-funded system, the greater will be the decline in informalization.

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Paper provided by International Institute for Applied Systems Analysis in its series Working Papers with number ir00041.

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Date of creation: Jul 2000
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Handle: RePEc:wop:iasawp:ir00041
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  1. Robert H. Bates & Steven A. Block & Ghada Fayad & Anke Hoeffler, 2013. "The New Institutionalism and Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 22(4), pages 499-522, August.
  2. Peter Luzik, 1999. "International Experience in Tax Reform and Lessons for Ukraine," CERT Discussion Papers 9904, Centre for Economic Reform and Transformation, Heriot Watt University.
  3. Anton Dobronogov, 1999. "Systems Analysis of Social Security in a Transition Economy: The Ukrainian case," Public Economics 9907004, EconWPA.
  4. F.L. MacKellar & T.Y. Ermolieva, 1999. "The IIASA Social Security Reform Project Multiregional Economic-Demographic Growth Model: Policy Background and Algebraic Structure," Working Papers ir99007, International Institute for Applied Systems Analysis.
  5. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
  6. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
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