engleski

Public Pension Expenditure in the New EU Member States: A Panel Data Approach

Sustainability and stability of the public pension systems based on a pay-as-you-go (PAYG) social security scheme has been challenged by aging society of industrial economies. Declining fertility rates and increased life expectancy lead to an increasing share of elderly people in the population, as well as rising age-related expenditure. They are further aggravated in the New Member States of the European Union by poor design characteristics of their pension systems and weak labor market performances in the transition period. Even though the pension systems of the countries differ, EU members are regulated by the same directives and membership implies convergence over time. This paper aims to verify whether there is convergence in the value of expenditure on public pensions between the New Member States and to identify the main determinants of public pension expenditure as a fraction of gross domestic product by integrating demographic, macroeconomic and design features of public pension system within a coherent panel data model for the period 1995-2017. Our dynamic panel data model enables a simultaneous investigation of the probable convergence of spending on public pensions between analyzed economies in the observed period. Early retirement, eased retirement criteria, generous replacement rates and relatively high share of disability pensions are identified as main incentives for reforms of the pension schemes.

Pension System ; PAYG ; New EU Member States ; Sustainability ; Convergence

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