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New Numerical Fiscal Rules for the Pension Balance

Author

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  • Gábor P. Kiss

    (Magyar Nemzeti Bank (Central Bank of Hungary))

Abstract

At the level of the individual, the pension system is characterised by the payment of contributions and the collection of benefits, both taking place over extended periods that are separated in time. On aggregate, in the coming decades the ageing of society will translate into more people receiving pensions, covered by the contributions of a decreasing number of contribution payers. In line with the EU’s fiscal framework, the fiscal rules on the general government deficit include the annual balance of pension payments and contributions; consequently, they fail to provide a suitable incentive for decreasing longer-term imbalances. It may be justified to exclude the pension balance from the coverage of these fiscal rules and to regulate the balance in such a way to ensure that it is maintained over the long term. In this case, the bias for measures with immediate effects (such as an increase in contribution rates) would be eliminated, which, given that the current regulations are focussed on the short term, tend to overshadow other measures with long-term effects (e.g. raising the pension age). Circumvention of this flexible rule can be avoided only if the following two conditions are met. One is the projection of the pension balance in a reliable and controlled manner. The other is that the necessary adjustment cannot be postponed or be avoided by overestimating its effects. Efficient operation also requires a harmonisation of national regulations and the EU’s fiscal framework. It is nevertheless important to stress that having separate fiscal rules apply to the pension balance would not mean that the pension system could be separately evaluated. The broader implications of cohort-specific distribution can only be assessed on the basis of on the socalled National Transfer Accounts research project, which records inter-cohort transfers as well.

Suggested Citation

  • Gábor P. Kiss, 2014. "New Numerical Fiscal Rules for the Pension Balance," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 9(2), pages 56-65, July.
  • Handle: RePEc:mnb:bullet:v:9:y:2014:i:2:p:56-65
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    References listed on IDEAS

    as
    1. Gábor P. Kiss & Róbert Szemere, 2009. "Apples and oranges? A comparison of the public expenditure of the Visegrád countries," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 4(1), pages 35-47, May.
    2. Andras Simonovits, 2013. "Regressive intracohort redistribution in nonfinancial defined contribution pension," CERS-IE WORKING PAPERS 1312, Institute of Economics, Centre for Economic and Regional Studies.
    3. Monika Queisser & Edward Whitehouse, 2006. "Neutral or Fair?: Actuarial Concepts and Pension-System Design," OECD Social, Employment and Migration Working Papers 40, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    fiscal rules; pension balance; medium-term projections; long-term projections;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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