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Indexing Public Pensions in Progress to Wages or Prices

Author

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  • András Simonovits

    (Institute of Economics, CERS
    Mathematical Institute, Budapest University of Technology)

Abstract

Initial public pensions are indexed to the economy-wide average wages, but pensions in progress are indexed to prices, average wages or their combinations – varying across countries and periods. We create a simple overlapping cohorts framework to study the properties of indexing pensions in progress – emphasizing a neglected issue: close wage paths should imply close benefit paths even at real wage shocks. This robustness criterion of an equitable pension system is only satisfied by wage indexing, which in turn requires the adjustment of the accrual rate. To minimize the redistribution from low-earning short-lived citizens to high-earning long-lived ones, progression should be introduced.

Suggested Citation

  • András Simonovits, 2020. "Indexing Public Pensions in Progress to Wages or Prices," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 12(2), pages 171-194, June.
    • Handle: RePEc:psc:journl:v:12:y:2020:i:2:p:171-194
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    References listed on IDEAS

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    Cited by:

    1. András Simonovits, 2022. "Longevity gap, indexation and age-specific average pensions," CERS-IE WORKING PAPERS 2217, Institute of Economics, Centre for Economic and Regional Studies.
    2. András Simonovits, 2023. "A rational pension reform package: Hungary, 2025," CERS-IE WORKING PAPERS 2324, Institute of Economics, Centre for Economic and Regional Studies.
    3. András Simonovits, 2021. "Introducing flexible retirement : a dynamic model," CERS-IE WORKING PAPERS 2109, Institute of Economics, Centre for Economic and Regional Studies.
    4. András Simonovits, 2023. "Unexpected Inflation and Public Pensions: The Case of Hungary," CERS-IE WORKING PAPERS 2306, Institute of Economics, Centre for Economic and Regional Studies.
    5. Gábor Oblath & András Simonovits, 2024. "Statistical overstatement of average wages and its impact on pensions: the case of Hungary," CERS-IE WORKING PAPERS 2402, Institute of Economics, Centre for Economic and Regional Studies.

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    More about this item

    Keywords

    public pensions; indexation; horizontal equity; pensions in progress;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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