Miroslav Verbič

Varying the Parameters of the Slovenian Pension System: an Analysis with an Overlapping-Generations General Equilibrium Model

This article presents an analysis of welfare effects in Slovenia, macroeconomic effects of the Slovenian pension reform and effects of the pension fund deficit on the sustainability of Slovenian public finances using a dynamic OLG general equilibrium model. Stress was laid upon varying two parameters of the current pension system: the age of retirement and the indexation rate of pensions. It was established that by tightening these parameters the elderly would lose, while the present and future generations would gain. The macroeconomic effects were in accordance with expectations; the employment level increased, while the effects of tightened parameters on real consumption were negative. Since the PAYG burden on incomes decreased, investment and thus the capital stock increased somewhat as well. Nevertheless, the long-term impact on real GDP appeared to be ambiguous. Without doubt the demographic slowdown of GDP growth has to be taken into account. Finally, tightening the parameters of the pension system substantially increased its long-term sustainability: while a lower indexation level of pensions considerably decreased the deficit of the public pension fund, increasing the retirement age was even able to delay the incidence of additional deficit.

Sustainability of the Slovenian Pension System: An Analysis with an Overlapping-Generations General Equilibrium Model

This paper uses a dynamic overlapping-generations (OLG) general equilibrium model to analyze welfare effects in Slovenia, the macroeconomic effects of the Slovenian pension reform, and the effects of the pension fund deficit on the sustainability of Slovenian public finances. Although young and new generations will lose from the pension reform, even complete implementation of reforms might not sufficiently compensate for unfavorable demographic developments. The level of expected deficit for the pay-as-you-go state pension fund seems to be most worrying. Financing the pension system with value-added tax revenues, as an extreme case, could result in more sustainable public finances, because gross domestic product and welfare levels ought to increase; however, this might be infea-sible to implement politically, given that generations of voters would have their welfare decreased. In addition, the present pension system is opaque and tremendously complicated and primarily, should be made more comprehensible to the public.

Retirement decisions in transition: microeconometric evidence from Slovenia

In this article we analyse old-age retirement decisions of Slovenian men and women eligible to retire in the period 1997–2003. In comparison with established market economies we find relatively high probabilities of retirement that decline with age. This unusual pattern can partly be attributed to weak incentives to work, inherent in the design of the pension system and reflected in predominantly negative values of accruals, and to transition-specific increase in wage inequality in the late 1980s and early 1990s. This is reflected in low wages and relatively high pensions of less productive (skilled) workers and vice versa. We find that the probability of retirement decreases with option value of work and net wages, although the response to the former, when controlling for the latter, is rather weak. Our results also imply that less educated individuals and individuals with greater personal wealth are more likely to retire.

Distribution of personal income tax changes in Slovenia

Slovenia belongs to a group of EU member states that have reduced their personal income tax burden during the late-2000s financial and economic crisis. The latest changes, introduced in the personal income tax system during the last two years, have primarily reduced the tax burden on low-income taxpayers. However, this was only the last step in a series of personal income tax reforms since 2004 that have reduced the average tax burden on all taxpayers. Using an exclusive database of taxpayers and utilising a general-equilibrium modelling platform, an approach that is unfortunately still rare in Central and Eastern European countries, we assess the consequences of these reforms at both the micro and the macro level. From a macroeconomic point of view, the initial positive consequences of higher private consumption and welfare are declining over time owing to the increased budget deficit and reduced investment.

Is more memory in evolutionary selection (de)stabilizing

We investigate the effects of memory on the stability of evolutionary selection dynamics based on a multi-nomial logit model in an asset pricing model with heterogeneous beliefs. Whether memory is stabilizing or destabilizing depends in general on three key factors: (1) whether or not the weights on past observations are normalized; (2) the ecology of forecasting rules, in particular the average strength of trend extrapolation and the spread in biased forecasts, and (3) whether or not costs for information gathering of economic fundamentals have to be incurred.

The Income Tax Reform in Slovenia: Should the Flat Tax Have Prevailed?

In 2007, Slovenia launched a comprehensive tax reform. This paper analyzes several proposed tax reform scenarios, including the flat tax proposal, with a dynamic general equilibrium model of the Slovenian economy, linked to a microsimulation model. We focus on the macroeconomic and welfare aspects of the proposed scenarios, capturing the effects on individual taxpayers and the government budget. The main characteristics of the model are presented along with the results of different reform scenarios, including that which finally passed the parliament and is now part of Slovenias tax system. Our results suggest that choices other than the flat tax system are better suited to the countrys longterm economic development.

A new look into the prevalence of balance sheet or competitiveness effect of exchange rate depreciation in a highly euroised economy

This article empirically tests the impact of exchange rate depreciation on sectoral performance proxied by investment or, alternatively, sales. It measures the balance sheet and the competitiveness effect in a country that records very high levels of liability euroisation. Panel data methodology is applied on a dataset of 20 Croatian non-financial sectors combining macroeconomic and sectoral financial information. Results confirm there are strong negative effects of liability euroisation on both investment and sales. Negative balance sheet effects and very small positive competitiveness effects are found as well, adding up to a negative overall exchange rate depreciation effect on sectoral performance. Moreover, we find evidence that the corporate sector does not hedge against exchange rate exposure and that the domestic financial system is a constraining factor for corporate investment growth. We also find evidence of size asymmetries related to bank lending relationships.

The Effects of Foreign Trade Liberalisation and Financial Flows between Slovenia and the EU after Accession

The new version of the CGE model of the Slovenian economy based on the 1998 SAM was used for simulations of the consequences of further foreign trade liberalisation after 1998 as the outcome of implementation of Free Trade Agreements and the European Agreement, adaptation of the Customs Tariff to the EU Common External Tariff for manufacturing products, adoption of the EU Common External Tariff after the accession of Slovenia to the EU, and estimated transfers between the two budgets. Results obtained show a positive net outcome of Slovenian accession to the EU in the long run. On the other hand, rational behaviour by the government will certainly moderate possible short-run negative effects and improve favourable long-run effects.

Wage and Income Inequality in Slovenia, 1993–2002

This article analyses the dynamics of wage and income inequality in Slovenia from 1993 to 2002, using two different data sources. The first is obtained by extracting relevant information on wage earners from the personal income tax (PIT) database and the second is obtained using published data on wages and the wage distribution. Analyses of both datasets clearly show a large increase in wage inequality in 1993–95. However, even after 1995 wage inequality has been creeping up. To a large degree, we ascribe the major increase in wage inequality to the rapid development of a full-fledged market economy and also to the changing PIT legislation. A growing individualisation of wage contracts doubtless also contributed to increased inequality. In addition, our analysis touches upon the effects of the tax system and shows that it significantly moderated the large increases in income inequality.

Demand for food during economic transition: an AIDS econometric model for Slovenia, 1988–2008

This article investigates the demand for food in Slovenia in 1988–2008 by employing an Almost Ideal Demand System based on Household Budget Survey datasets with own production included. It was established that the demand for food was mostly inelastic, while the responsiveness of households to income and food prices was in general increasing with time. Even though expenditure shares for food did not vary much by income brackets, there were some differences in the elasticities. Taking own production into account, the elasticities of food demand decreased. Overall, Slovenians preserved quite uniform nutritional habits during the transition period; changing to some extent with time but not much in structure by disposable income.