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TABLE 14-1 Pension Spending as a Share of GDP

Country

Share of Population over Age 60 (%)

Pension Share of GDP 1990

Pension Share of GDP 1993/1994

92 Country Sample

Poland

14.8

8.80

15.0

3.479802

Czech Republic

16.9

8.00

8.0

3.881087

Slovak Republic

16.2

7.40

9.4

3.747325

Ukraine

18.7

9.60

9.0

4.225045

Bulgaria

19.7

7.80

8.8

4.416133

Hungary

19.3

9.10

10.3

4.339698

Israel

12.1

4.3

Portugal

18.7

7.7

Uruguay

16.4

8.8

Japan

17.3

5.0

United States

16.6

6.50

-

Germany

20.3

10.8

Canada

15.6

4.2

Latvia

17.9

5.60

10.2

4.072175

Estonia

17.2

5.6

6.4

3.938413

Lithuania

16.2

6.77

5.2

3.747325

cent in Hungary, Bulgaria, Latvia, and Slovakia. Two factors account for most of the increases.2

  • Pensioners held on better. As with all other incomes, pensions fell in real terms during the initial period of price decontrol and inflation. However, as prices stabilized, pensions recovered some of their lost ground. In many countries, pensioners managed to recover more of the purchasing power lost during inflationary periods than did wage earners—the aging were able to capture a larger share of the falling GDP.

  • Eligibility expanded. The policy measures taken by many of the postcommunist states to cope with the social costs of transition have significantly worsened the financial position of the public pension system. In hopes of reducing unemployment, countries allowed workers to retire up to 5 years earlier and receive a full pension. Disability criteria were also applied less stringently. Today in Poland and the Czech Republic, for example, more than two-thirds of pensioners are under age 60.

Countries increased payroll tax rates dramatically to finance these expenditures—up to 40 to 60 percent of employees' gross wages (Andrews and Rashid, 1996). Nevertheless, most systems experienced financing crises, requiring additional financing from other sources of revenue or resulting in pension arrears. In many parts of the New Independent States, benefits have

2  

See Andrews and Rashid (1996) for a country-by-country analysis of these trends.



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