Macroeconomic Implications of Changes in Social Security Rules

Bagis, Bilal (2017): Macroeconomic Implications of Changes in Social Security Rules. Published in: International Journal of Research in Business and Social Science , Vol. 6, No. 1 (February 2017): 01-20.

Abstract

The Turkish social insurance system has been feverishly debated for years, particularly through its burden on the economy. The most recent reform is an attempt to neutralize the deterioration within the social security system and its effects on the economy. After the recent reform, ‘the way that retirement benefits are calculated’ is changed unfavorably for workers and the minimum age for retirement is increased. In particular, for an agent with 25 years of social security tax payments, the 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. The author’s findings indicate that labor supply, output and capital stock increase when changes above are applied to the benchmark economy calibrated to the Turkish economy data in 2005. A critical change with the current reform is that the marginal benefit of working has become uniform over ages. In a simulation exercise, the marginal retirement benefit in the benchmark economy is changed to be uniform over ages while keeping the size of social security system unchanged. As a result, the benefit of retiring at a later period increases. However, uniform distribution of the marginal benefits itself decreases both the capital stock and output of the economy. Increasing the retirement age has positive effects on the economy since agents obtain retirement benefits for fewer years and at an older age.

• Item Type: MPRA Paper
• Language: English
• Keywords: Social Security Reform, Retirement Age, Replacement Rate, Macroeconomics.
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; H - Public Economics > H2 - Taxation, Subsidies, and Revenue; H - Public Economics > H5 - National Government Expenditures and Related Policies; J - Labor and Demographic Economics > J1 - Demographic Economics; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor

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