By Sarah Brooks, Duke University, Estelle James, World Bank

It has become apparent that many policies that we recommend at the Bank for technical economic reasons have not been implemented for political reasons. This discrepancy between economics and politics has led the Bank, and the academic community, to begin thinking about the political economy of reform. Considerable work has already been done on the political economy of macro-economic reform and trade policy, emphasizing factors such as incomplete information, time inconsistency of preferences, credibility problems, path dependency and interest groups as major obstacles to reform.1 Less work has been done by economists on the political economy of sectoral reform.2 This study tackles that question, using pension reform as a case in question. Public pension schemes are the largest fiscal program in many countries, and in most countries these schemes are in serious trouble. Declining fertility rates and increasing life expectancy has exerted economic pressures on traditional pay-as-you-go (PAYG) systems, making them nonsustainable in their present forms. Thus far, some countries have made only minor alterations in the parameters (rates of contributions, benefit calculations, retirement age) of their existing systems. However, others in such diverse corners of the world as Argentina,Sweden, Hungary, Kazakhstan, Hong Kong and Australia have responded with major structuralchanges, shifting from PAYG to funded systems and apportioning greater responsibility to theprivate sector to provide old age benefits by managing these funds. All countries have facedserious political obstacles to reform

Source: citeseerx