A Framework for the Analysis of Pension and Unemployment Benefit Reform in Poland

Abstract

Pension reform in Poland is an urgent priority. Benefit expenditures have placed considerable pressure on public finances, hampering stabilization efforts. Demographic developments will exacerbate this pressure although probably less than some estimates have suggested. The main long-term argument for reform is that the current system induces severe microeconomic distortions. To analyze possible reforms, this paper employs a simulation model of a utility-maximizing household facing the detailed rules of the current Polish pension system. The reforms considered are designed to reduce the dead-weight losses associated with current arrangements and to alleviate the inequality engendered by the present system.