The savings gap in Hungary

In a simple cohort model we project current per capita age-profiles of labour income and consumption to the future and combine them with the expected future age composition of society. We use Hungarian data of 2012. Due to a shrinking and ageing population this exercise predicts a growing gap between labour income and consumption, which have to be covered by asset-based revenues. We apply two balancing items, a windfall capital endowment in the base year and a gradual capital accumulation through higher savings. We also quantify how much can the household economy, an integral but unregistered part of
modern economies, absorb of the effects of ageing. In addition, we also feed the model with 1995 demography. The two decades between the mid-1990s and the mid-2010s offered a special demographic opportunity for Hungary. This period coincided with the botched prefunding
experiment in the public pension system. We demonstrate the potential of this missed opportunity.