Assessing Pension System Reform: Theory and Empirical Evidence
In recent years many countries around the world have either undertaken or started seriously considering a pension reform. Those countries that reformed their pension systems opted for markedly different reforms with respect to the degree of their privatization. Due to its importance, this process attracted the attention of many policy analysts who tried to explain its underpinnings. This study builds on the body of literature, and in particular studies done by Brooks and James (2001) and Brooks (2002). It reassesses their findings, but also expands on their work by including more observations of reforming countries due to widespread pension reforms in years since their studies. Also, this study introduces several new explanatory variables, and gives due attention to demographic factors that have been neglected in the relevant literature in recent years. The findings mostly corroborate Brooks and James' results that path dependency, regional influence, and implicit pension debt are the most important explanatory factors for pension reform decision, and the degree of pension privatization. It also confirms the findings of the majority of relevant papers that savings rate is not an important determinant of either of the two outcomes of interest: pension reform and the degree of pension privatization once reform is undertaken. In addition, this study finds demographic factors do not play an important role in the decision to undertake a pension reform or the degree of pension privatization, which defies conventional wisdom.
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