The Measurement of the Degree of Government Regulation in the Pension System

Abstract

Introduction: The liberalization tendency in the economic system of most countries in the world exists in the last years. Our last research proves that in most cases liberalism gives a positive effect on social-economic development (including pension system). However, constructive potential of economic liberalism is not everlasting, it means, first at some stages there is a certain end for the liberalization of the economy. Secondly, after a certain level (before the last level) liberalism may bring out an imminent shortage (the market sinister) in the free market in a destructive way. That is why one of the essential (and very difficult) duties of economic science is to define effective ranges of liberalism (accordingly, government regulation) for each certain country during a specific time frame. One of the differences of the pension system from other social protected chains is that this system is capable to liberalize. Is it possible to measure the degree of the government regulation of the pension system? Unfortunately, this chapter has revealed that there is no such methodology. The author has created a methodology for the first time that allows to measure the degree of government regulation in the pension system. This methodology is called the Index of Liberalism (Dirigisme) of Pension System (IL(D)PS). By calculating IL(D)PS, the author finds out that the regulation degree (interval) of the pension system. Measurement of the degree of government regulation in the pension system allows evaluating the social consequences of the implemented reforms. IL(D)PS has been calculated on the basis of four indicators: (i) ratio of the private pension assets (%GDP); (ii) ratio of the public pension expenditures (%GDP); (iii) social security tax rates for employers; and (iv) restrictions for investment of the pension funds. At the initial stage IL(D)PS has been calculated for 31 countries. Among 31 countries, there are developed, emerging, post-socialist countries and countries known for their revolutionary reforms in the pension system. According to IL(D)PS, the most dirigiste (leftness) countries are France (0.868), Greece (0.732), Italy (730) and Azerbaijan (0.704). According to the IL(D)PS, the most liberal (rightness) countries are Australia (0.208), Denmark (0.223), the Netherlands (0.231) and Canada (0.237). In Azerbaijan, pension provision is under governmental monopoly (extreme dirigiste system). The private pension system in Azerbaijan has not been formed yet. Azerbaijan has a certain degree of liberalization of the pension system. Aim: The author wants to measure the degree of the government regulation in the pension system. Method: The author have performed correlation, analytical-statistical and cross-country analyze. Findings: The degree of the government regulation in the pension system has been measured in 31 countries.

Citation

Abdullayeva, R.S.G. (2021), "The Measurement of the Degree of Government Regulation in the Pension System", Grima, S., Özen, E. and Boz, H. (Ed.) Contemporary Issues in Social Science (Contemporary Studies in Economic and Financial Analysis, Vol. 106), Emerald Publishing Limited, Leeds, pp. 1-16. https://doi.org/10.1108/S1569-375920210000106001