Implicit Public Debt of the Czech Social-Security System
Charles University - Institute of Economic Studies; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
CASE Network Studies and Analyses No. 167
The Czech social-security system is hampered by the aging population, similarly as all European systems. The discussion of remedies is still very rudimentary. Pro-reform arguments concentrate on the non-sustainability of the current system in the long term and on the miserable returns the system produces for the taxpayers. Funded systems are consequentially quoted as a viable alternative. The main argument of the non-reformers, on the contrary, rests with the sky-high costs of such a reform and on the societal instincts that may clash within an attempt. In this paper, we try to carry out an objective and comprehensive appraisal of the implicit debt of the Czech social-security system. Such an estimate would be crucial if a reform, at least partially based on the switch to a funded system, were to be conceived. Currently, the government is considering no such reform. Therefore, for the short-term fiscal outlook, costs of unreformed system should be taken into account. In a longerterm, though, future governments will have to deal with the pension system and implement some aspects of the pension reform. We show that the current social-security system based on the PAYG principle is heavily indebted, though the debt is thus far 'implicit.' Taken all parts of the system together, the Czech social security system has accumulated debt in excess of 250% GDP, level similar to other European countries. The debt level is, indeed sensitive to the valorisation coefficient. Should the future governments apply very restrictive policies and keep social security benefits fixed in real terms, the overall implicit debt would decrease to 199% of GDP. On the other hand, more generous valorisation by 4% in real terms would lift the implicit debt to 324% of GDP.
Number of Pages in PDF File: 24
Keywords: Public Debt, Czech Republic, Social Security Systemworking papers series
Date posted: August 9, 2009 ; Last revised: February 9, 2010
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