Quantitative implications of changes in social security rules: the 2008 reform of Turkey

Official URL: http://192.168.1.20/record=b1276342 (Table of Contents)

The Turkish social insurance system has been under feverish debates for years, particularly through its burden on the economy. The most recent reform on the social insurance system is an attempt to neutralize deterioration in social security system and its effects on the economy. After recent reform, the way that retirement benefits are calculated is changed against workers and minimum age for retirement is increased. In particular, for an agent with 25 years of social security tax payments, replacement rate is down from 65 percent to 50 percent. On the other hand, retirement age is up from 60 to 65. The aim of this paper is to investigate the macroeconomic effects of these changes using an OLG model. My findings indicate that labor supply, output and capital stock increase when the changes mentioned above are applied to the benchmark economy calibrated to the Turkish economy data in 2005. A critical change with current reform is marginal benefit of working became uniform over ages. In another simulation exercise, I change the marginal retirement benefit in the benchmark economy to be uniform over ages while keeping the size of social security unchanged. As a result, benefit of getting retired in a later period is increased. Uniform distribution of marginal benefits decreases both capital stock and output of economy, however. Increasing retirement age, on the other hand, result in agents getting retirement benefits for less time and in an older-age. Age increase has substantial positive effect on both labor supply, capital stock and output.