Policy Risk in Action: Pension Reforms and Social Security Wealth in Hungary, Czech Republic, and Slovakia

We provide evidence on the policy risk of social security in Hungary, the Czech Republic, and Slovakia by computing the changes in social security wealth induced by the pension reforms undertaken since the 1990s. Analyzing the impact of reforms on workers of different genders, ages, and education levels allows us to document the aggregate, intergenerational, and intragenerational aspects of the policy risk. Pension reforms reduce social security wealth by amounts that sometimes exceed several years' worth of earnings and have large redistributive effects across and within generations. Our findings imply that uncertainties about the redistributive impacts, timing, and political dynamics of reforms contribute significantly to the policy risk in addition to the inevitable demographic and economic risks.