Government Subsidized Individual Retirement System

Government Subsidized Individual Retirement System

Title:

Government Subsidized Individual Retirement System

Number:

15/20

Author(s):

Okan Eren, Şerife Genç İleri

Language:

English

Date:

July 2015

Abstract:

A new private pension scheme where the government makes direct contributions to the retirement accounts has been effective in Turkey since 2013. In this paper we examine the quantitative impacts of this new individual retirement system on the saving rate, capital stock and the long-run welfare of the individuals. We build a multi-period OLG model and simulate an economy with a pension scheme similar to the one in Turkey. Our simulation results reveal that the introduction of this private pension scheme increases the net saving rate by 0.27 percentage points. 23.9 percent of the increase in individual retirement assets constitutes incremental saving. The impact of the new system on physical capital stock is a 15.6 percent rise. According to our long-run welfare analysis, an unborn individual prefers to be born into the economy with individual retirement accounts (IRAs). Our results also suggest that cutting down the fees charged on individual retirement accounts generates a considerable improvement in net saving rate and the stock of physical capital.

Keywords:

Household Saving, Fiscal Policy, Private Pension Accounts

JEL Codes:

D14; D91; E21; E62

Government Subsidized Individual Retirement System
CENTRAL BANK OF THE REPUBLIC OF TURKEY Head Office Anafartalar Mah. İstiklal Cad. No:10 06050 Ulus Altındağ Ankara Phone : (+90 312) 507 50 00 | Fax : (+90 312) 507 56 40