Pension Reform in a Highly Informalized Post-Soviet Economy

IIASA Interim Report IR-00-41

Cass Business School Research Paper

Posted: 16 Nov 2000

See all articles by Anton Dobronogov

Anton Dobronogov

World Bank

Leslie D. Mayhew

City University London - The Business School

Date Written: July 2000


Pension reform is now on the national agenda in most post-Soviet countries. These countries have highly informalized economies, which means that large areas of economic activity go unreported to the authorities. This paper deals with the problem of pension reform in a highly informalized post-Soviet economy, Ukraine. It includes an analysis of causes and consequences of informalization, a general description and analysis of trends in the Ukrainian pension system, and a discussion of different approaches to reform. The paper describes an approach to modeling labor and capital flows between the formal and informal sectors using a gravity model. It also reports and discusses results of simulations of different scenarios of pension reform in Ukraine.

Policy-relevant findings of the study are as follows:

* Public trust in reform is crucial. Therefore, in designing and implementing reforms exceptional attention should be paid to trust-building measures;

* Debt-financed transition to a fully-funded pension system in an informalized post-Soviet economy can lead to higher efficiency gains than a tax-financed transition. This is due to an alleviation of the tax burden, which encourages a decline in unreported economic activity.

* Provided that public trust in the reform is sufficient, the larger the fully-funded system, the greater will be the decline in informalization.

Suggested Citation

Dobronogov, Anton and Mayhew, Leslie D., Pension Reform in a Highly Informalized Post-Soviet Economy (July 2000). IIASA Interim Report IR-00-41, Cass Business School Research Paper, Available at SSRN:

Anton Dobronogov (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States


Leslie D. Mayhew

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom


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