Pension reform in Hungary

Reforms are not created simply by will, they are constrained by path dependency and also by existing economic and political structures. The course of reforms is also dependent on the formulation of reform alternatives and the balance of power among decisive actors. Both the postponement and then the introduction of the pension reform in Hungary can be explained by the economic and political constraints of the reform, by how reform alternatives were formulated, and by the role of the different actors in the reform process. The structure of this paper reflects these considerations. First, I summarize the characteristics of the socialist pension system that partly created path dependency in the process of pension reform. Second, I look at the economics of pension reform, by discussing the economic constraints of the reforms, and presenting the economic aspects of reform arguments and economic policies modifying and changing the pension system. Third, I examine the politics of the pension reform, and describe the political process of bargaining that generated reform outcomes. Finally, I deal with the role of the World Bank that was the most important international actor in the Hungarian pension reform process.