What really is a pension crisis? A theoretical argument on the link between ageing, productivity, and retirement


Today, I got to read the latest policy recommendation from CEU Center for Policy Studies, written by Dragos Adascalitei and Stefan Domokos. They start from a paper by the World Bank from 1994, Averting the Old Age Crisis, and build their argument after reviewing the infamous policy recommendations from WB: reduce the rate of contributions and shift the burden of social security taxes towards employees, privatization as a method of nudging for joining the official economy, neglecting all together the exacerbation of social inequalities. They give examples from Bulgaria that the WB policies failed to get the expected results. And they continue: the real problems will begin when the baby-boomers will start retiring, and the PAYG systems will become more and more expensive, creating more debt and higher levels of taxation.

The root of the public pension system lies, in the opinion of the authors, in whether productivity increases could cover pension outlays. And when having in mind that productivity and wages are in a troubled relationship with Foreign Direct Investments (FDIs), then one could only imagine which of the countries in the region would save its ass from bankruptcy.


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