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Pension Reform in Russia: A General Equilibrium Approach

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  • Kuznetsov Artem
  • Ordin Oleg

Abstract

This paper uses a classic, overlapping generation model to analyze the optimal transition of the Russian economy from a PAYG pension system to a funded pension system. The transition is associated with the accumulation of social capital gained by increased contributions to the pension system. The analysis of the two-period model defines the optimal rule for the choice of the present value of the pension package as a function of aggregate capital stock in the economy. In the numerical simulation, the large-scale dynamic model of the Russian economy is used to compare the welfare efficiency of three transition scenarios. All the scenarios assume that the economy shifts from a steady state with a PAYG pension system to a steady state with funded pensions though the speed of transition differs among the scenarios. The analysis suggests that transition to a funded pension system produces social welfare gains and allows one to choose the efficient transition trajectory. However, Pareto-improving transition is not achievable in the model since some age cohorts have to pay greater contributions to the pension system in order to initiate the accumulation of social capital.

Suggested Citation

  • Kuznetsov Artem & Ordin Oleg, 2001. "Pension Reform in Russia: A General Equilibrium Approach," EERC Working Paper Series 01-02e, EERC Research Network, Russia and CIS.
    • Handle: RePEc:eer:wpalle:01-02e
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    References listed on IDEAS

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    More about this item

    Keywords

    Russia; PAYG pension system; funded pension system; steady state; transition;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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