Reforming Pensions in Europe: Economic Fundamentals and Political Factors

This paper analyzes pension reforms in Europe and their determinants. The author introduces an alternative measure of pension reforms by comparing long-term forecasts of pension expenditures for seventeen European countries. The larger the decrease in expected spending on public pensions in 2050 between two base years, the more successful an pension reform the country achieved (after controlling for other factors, such as demography). The author´s analysis shows that the reform effort varies widely across countries and over time. In the second part of the paper, the author analyzes factors that may facilitate or hamper pension. Only the measure of trade union power proves to be significant in explaining pension reforms. However, specific pension system factors are significant and suggest that European governments do reform their pension systems when faced with the threat of escalating pension expenditures.