Hans Fehr and Øystein Thøgersen* 1 Introduction Design and reform of social security in the form of public pension programs have a prominent place on the policy agenda in more or less all Organisation for Economic Co-operation and Development (OECD) economies as well as in many emerging markets. According to the OECD, nearly all of their 30 member countries have implemented at least some changes to their pension programs since 1990 and 17 have had major reforms (OECD, 2007). These widespread reforms were the logical, and probably unavoidable, consequence of the general developments. The public pension programs, which essentially are financed on a pay-asyou-go (paygo) basis, matured over several decades and in most cases the generosity of the programs increased along several dimensions. It is probably fair to say that this development in many cases culminated with the implementation of quite liberal early retirement programs during the 1970s and 1980s. Then, during the last two or three decades, a growing awareness of how the financial viability of the programs is threatened by (mainly) ageing populations, ignited the current wave of reforms. Given the widely perceived seriousness of the financial problems and the intensity of the ongoing debate, a series of additional reforms in the years to come is a safe prediction. Assessments of public pension programs must, as in the case of any other tax-transfer program, consider the trade-off between the gains caused by intended distributional effects associated with protection and income maintenance for the old and, on the...
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