Pension privatization and economic development in Central and Eastern Europe: A political economy perspective (Draft)

This paper takes a political economy approach to analyze the importance of economic factors and motives in the making of pension privatization in Central and Eastern Europe, taking a closer look at the cases of Hungary and Poland.

In 1998 and 1999, respectively, Hungary and Poland embarked on pension privatization. The paradigm shift that Hungarian and Polish policy makers carried out amounted to a deliberate break with social security traditions and with the pension policy of peer nations in the region. Its iconoclastic character notwithstanding, the move ended up creating an influential precedent in Central and Eastern Europe. Pension privatisation was only partial in both countries, with policy makers opting for a mixed model with two mandatory tiers, thus combining a public pay-as-you-go tier and a private prefunded one.

The paper concludes that macroeconomic considerations have indeed played a prominent role in pension reforms in Central and Eastern Europe.

This paper was prepared for the UNRISD project on Pension Funds and Economic Development.

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