Parametric Social Security Reforms and Saving: Evidence from Turkey

Transcription

1 Topic in Middle aen and Afican conomie Vol. 3, Sepeme 20 Paameic Social Secuiy Refom and Saving: vidence fom Tukey Yigi Aydede Depamen of conomic, Sain May Univeiy, Halifax, NS B3H 3C3, Canada. mail: Aac: Thi pape ague he diiuional effec of paameic penion efom on aving and povide ome evidence fom Tukey. Fi, I develop a wo-peiod ovelapping geneaion model in which wealh diiuion ae iniiaed y an advee demogaphic hock o he PAYG yem. Unlike ohe empiical udie eing age-conumpion pofile, I ague ha, when anfe ae ued o alance he yem, he ignifican diffeence eween woke and eiee in em of he maginal popeniy o conume (MPC can uaniae he negaive effec of wealh ediiuion on naional aving. In he econd pa, I apply panel eimaion y uing micodaa fom he Houehold Budge Suvey conduced in 2003, 2004, 2005, and 2006 fo moe han 50,000 houehold. I how ha, alhough he MPC i no highe fo olde geneaion, i i ignificanly highe fo eiee han fo woke. ven hough confiming hi fac alone doe no pomie a educion in naional aving, he eul imply ha, given he unpaalleled geneoiy of he Tukih PAYG yem and i ignificance in houehold udge and a long a efom ediiue wealh fom woke o eiee, he ecen paameic efom hould coniue o he cuen negaive end in naional aving. Keywod: Inegeneaional Tanfe, Life-Cycle Saving, Social Secuiy JL claificaion: J, H3, 2 Coupled wih ohe ucual polem in he economy, he evee financial cii ealy in 999 foced he Tukih govenmen, led y he Wold Bank, o efom i impaied ocial ecuiy yem in Augu 999. Thi paameic efom, which wa followed y eveal ohe, e a equied minimum eiemen age (aen efoe and aimed o achieve an acuaial alance of he pay-a-you-go (PAYG yem a well a o educe peue on he oowing need of he govenmen in he medium em. The diincion of he Tukih cae come fom he fac ha he Tukih eiemen yem i ill one of he mo geneou ocial ecuiy yem in he Oganiaion fo conomic Co-opeaion and Developmen (OCD egion, alhough i i inolven. In 2004, a new meme of he yem had $74,000 aveage go penion wealh wih $2,50 pe capia go naional income (GNP whee he ame nume wee $83,000 and $35,430, epecively, fo he U.S. (OCD, The co of hi geneoiy i eing hifed ono Topic in Middle aen and Noh Afican conomie, eleconic jounal, Volume 3, Middle a conomic Aociaion and Loyola Univeiy Chicago, Sepeme, 20, hp://

2 new geneaion y a mouning legacy de. Tha i, he oal defici of he yem accouned fo 4.5 pecen of he GNP in 2004, and he peen value of he oal eouce ued o finance he yem defici eween 990 and 2003 i almo equal o he GNP ceaed in 2003 (Miniy of Lao and Social Secuiy, Since 999, hee have een hee majo paameic efom ha fully affeced only new enan o he lao foce. The efom wee phaed in gadually o ha he old meme and eiee of he yem wee ale o keep hei peviou penion enilemen unchanged. In June 2006, a hid efom on Social Secuiy and Healh Cae wa legilaed y he Tukih Paliamen, which i expeced o educe he cumulaive defici o zeo in 48 yea. Depie he fac ha he minimum age wa inceaed o 65, many people will ill e qualifying fo eiemen in hei lae 40 and ealy 50 unil A documened y Book and Whiehoue (2006, even afe hee majo efom, he geneoiy of he pe-999 yem will coninue o have a majo impac on penion enefi fo many decade o come. In ohe wod, policy make deigned hee efom o keep he geneou paymen fo cuen meme inac o ha he yem long-em alance mu e achieved y ediiuing wealh fom woke o eiee. Many udie exi on how hee efom migh povide a uainale financial ecovey; howeve, udie ha inveigae he diec effec of hee paameic efom on wealh diiuion and aggegae aving ae aen. Thi lack of inee migh e due o he fac ha he pivae aving ae in Tukey ha een highe han he OCD aveage fo he la 30 yea. Howeve, hee ha een a ignifican fall (20 pecenage poin of GDP and a eady decline in he aggegae pivae aving ae ince 200, which i a paicula concen fo official now (IMF, Thee i oad ageemen ha hi end em fom ooing confidence, elaxed liquidiy conain, inceaed poliical ailizaion, and Ricadian effec fom inceaing pulic aving afe he po-200 ecovey of he economy. A lage nume of udie elae he inegeneaional ediiuion of wealh o naional aving. In ief, unlike he infinie-hoizon model, he life-cycle model implie ha he ime pah of axe ha eal impac on he economy y changing he eveiy of ax dioion on diffeen geneaion. I eak he link eween he hoizon of pivae individual and ha of he govenmen. If geneaional diffeence in he maginal popeniy o conume (MPC ae ignifican, any pulic policy ha ediiue wealh fom younge geneaion o olde geneaion caue naional conumpion o inceae and aving o fall (Aueach and Kolikoff, 983; Kolikoff, Howeve, excep fo he windfall ha he ealy geneaion eceive a he inoducion, if he implici ae of eun fo he PAYG yem i no diffeen fom wha a pivae invemen can ean, anfe y he yem do no ale lifeime wealh fo geneaion. Theefoe, analyzing he diiuional effec of exiing PAYG yem on conumpion equie an explici model in which he yem face unexpeced advee hock and he planne ue anfe o alance he yem. In hi pape, I ague ha hee ae diiuional effec of hee paameic efom on aving Since he Supeme Cou ha ejeced he law, he efom did no ake effec in Januay The cou indicaed ha he ejeced efom aemped o evoke he peviou igh given o cuen meme and eiee. Theefoe, i i expeced ha he evied veion of he efom ha he govenmen ha een woking on will e phaed in ove an exended peiod of ime. 2 ven hough i i no a hap a in pivae aving, Tukey naional aving ha alo een falling. 2

3 and povide ome evidence fom Tukey. Moe pecifically, in he fi pa of hi pape, o how how paameic efom may impac conumpion (aving, I develop a wo-peiod ovelapping geneaion model in which wealh diiuion ae iniiaed y an advee demogaphic hock o he PAYG yem. Unlike ohe empiical udie eing age-conumpion pofile, I ague ha, when anfe ae ued o alance he yem, he ignifican diffeence eween woke and eiee in em of he MPC can uaniae he negaive effec of wealh ediiuion on naional aving. In he econd pa, I apply panel eimaion y uing micodaa fom he Houehold Budge Suvey conduced in 2003, 2004, 2005, and 2006 fo moe han 50,000 houehold. I how ha while he MPC i no highe fo olde geneaion, i i ignificanly highe fo eiee han fo woke. Confiming hi fac alone doe no pomie a educion in naional aving, paiculaly unde developing couny condiion. Howeve, he eul imply ha, conay o wha many expec fom hee efom and given he unpaalleled geneoiy of he Tukih PAYG yem and i ignificance in houehold udge, 3 a long a hey ediiue he wealh fom woke o eiee, he ecen paameic efom will coniue he cuen negaive end in naional aving. Thi pape elae o an exenive lieaue. Aydede (2008 analyze he elaionhip eween aving and ocial ecuiy in a ime-eie eing fo Tukey y uing he ocial ecuiy wealh (SSW eie calculaed eween 970 and The eul how ha SSW, which i he igge pa of houehold wealh in Tukey, ha ou and poiive effec on aggegae conumpion; heefoe, i uppee aggegae aving. 4 Aggegae ime-eie udie (Feldein, 974; Bao, 978; ngen and Gale, 997; Blake, 2004 have well-known hocoming (Kolikoff, 2003; Seidman, 985 and heefoe have een ounumeed y co-ecion/panel udie eing he ignificance of he diplacemen eween penion and non-penion wealh a he individual level. 5 The majo polem wih hee udie, howeve, i ha hey ue infomaion aou houehold no aou familie, which doe no diinguih anfe aco geneaion fom anfe aco houehold. 6 Theefoe, a ignifican negaive coefficien of SSW canno anwe whehe penion wealh diplace non-penion wealh. Thi pape uild on he agumen concepualized y Aueach and Kolikoff (983 and Kolikoff (2003 ha, if geneaional diffeence in he MPC ae ignifican, any pulic policy ha ediiue wealh fom younge geneaion o olde geneaion caue naional conumpion o inceae and aving o fall. The plan fo he pape i a follow. Secion explain he model. The daa and i ouce ae peened in Secion 2. mpiical eul ae povided in Secion 3. I dicu he finding in Secion 4. 3 I i expeced ha a SSW decline fo younge geneaion hey ae moe likely o inceae hei aving fo eiemen, which in un may have a poiive impac on naional aving (IMF, The eimaed magniude of hi diaving i aound 24 pecen fo The mo ecen udy i Hud, Michaud, and Rohwedde (2009. An exenive li of coecion udie can e found in he CBO Memoandum (998 and ngen and Gale ( Fo example, houehold wih highe SSW could accumulae le non-penion wealh if hey expec o have a eque fom hei paen in he fuue. Co-houehold anfe wihin an expanded family could make houehold wih geae han aveage SSW accumulae le pivae wealh han ohewie would e he cae. Likewie, a houehold wih highe SSW could have highe non-penion wealh if i non-penion wealh include inheiance. 3

4 The Model When a planne face an advee hock and decide on a paameic efom o ecue he yem, expecaion aou he fuue can deviae fom wha he planne pomie depending on he uainailiy of he acual policy in people eye. To how fomally how expecaion on he penion yem affec oal conumpion, I ue a imple wopeiod ovelapping-geneaion model whee hee i no poducive capial and idenical individual ae endowed y w. They ave ( in he fi peiod, hen eie and pend hei aving in he econd peiod. Thee i no unceainy in hei lifeime, liquidiy conain, eque, o gowh in endowmen. To avoid defining he uiliy funcion explicily, I aume ha he eal inee ae ( i equal o he peonal dicoun ae (ρ. The planne un a alanced PAYG yem whee he young, y, pay axe, τ, and he enio, o, eceive enefi,. In all peiod, 2,, hee exi a eady ae wih R L ( n, ( R and L and fo he nume of eiee (he old and he woke (he young, epecively, and he populaion gow y n, which i he implici ae of eun (IRR of he yem. In peiod hee i an advee demogaphic hock (θ, o ha n = n θ. Conequenly, he udge of he penion yem change o ( n (. (2 The govenmen ue ax uchage (τ and pli he fical uden θ τ eween exiing geneaion a ime o ha eldely and young coho have o ea a hae δ and δ, epecively. Conequenly, we have (. (3 Suiuing (3 ino (2 and uing he definiion fo (, we can deive. n (4 Noe ha if δ = we have = o ha he old in ea no uden fom he hock. In hi ene, when an advee hock hi, he planne deciion on δ ecome a paameic efom fo he exiing PAYG yem and coniue unexpeced wealh anfe among geneaion imila o hoe a he yem inoducion poin, whee he iniial enio eceive a windfall. Fom he individual pepecive, hock ae ecognized when he young ae equied o pay ax uchage (τ, and hey fom hei expecaion on δ in he fi peiod deemined y he planne in he econd peiod. Fomally, evey young peon who i equied o pay axe and ax uchage maximize 4

5 5, ( ( (, ( oj yj oj yj j c u c u c c U ujec o j j j oj j j yj c w c and If he uiliy funcion aifie he convenional condiion and ρ =, he young a ime olve hi polem wih he following value: (5, ( ( 2 w c y (6. ( /(2 w Given ha all individual ecognize ha he planne commi o a alanced udge (2, he young expecaion aou enefi a ecome: (7. ( ( n Auming ha θ + = 0 and uing (4, we oain (8. ( n Uing (8 and he fac ha, ( ( n n (7 ecome (9. ( ( n Suiuing (9 and (4 ino (5, we oain (0. ( ( ( 2 y n n w c Likewie, he old alo face he following conumpion funcion a ime : (. ( 2 ( o w c Becaue - θ = 0 and ( n, when we uiue (2 fo, ( ecome:

6 c o n w (. 2 2 (2 By uing (0 and (2, he maginal effec of he anfe policy on he oal conumpion, C R c L c, can e oeved a follow: o y dc d R ( MPC o L ( MPC y 2 d, d (3 whee, a hown in (0 and (2, MPC ou of anfe (δθτ fo he old and he young ae one and (+/{(2+(+nθ }, epecively. When we ue L ( n L wih L - (i.e., R nomalized o one, (3 ecome dc ( ( d n MPCo MPC y n. (4 d d 2 Noe ha he fi em in he acke, he diffeence eween MPC, i alway poiive, and he ign of (4 depend on he ign of he econd expeion in he acke. Thee ae hee poile cae. Fi, if he anfe i on y he cuen young geneaion, ( δ + = 0, a wealh ediiuion will inceae conumpion y θτ/(2+. Second, if he anfe i hifed ono unon geneaion and he policy i inding, ha i, δ + = δ, conumpion will ie y {(2+nθ (θτ}/(2+. Thid, if he yem pomie geneou u unuainale SSW y eing δ cloe o one wih an uninding anfe policy, conumpion may even decline. The diveion eween expecaion and he acual policy ecome moe likely a each geneaion face inceaing ax uchage (o iing pulic de in he face of cumulaing hock. Conequenly, a inding policy (a conan δ gow o e unuainale, a implied y (4 elow. i i, n i i (4 which ha o e le han o equal o (w-τ. Thi ing up a poiiliy ha he planne may decide o end he pogam (gadually o all a once o ha he expecaion aou he policy vaiale (δ can ealiically e lowe han zeo. Thi ing up a heoeical amiguiy on how a Ponzi-cheme like PAYG affec conumpion. I i oviou fom (0 and (2 ha when n > SSW ecome poiive, and, uing (4, aggegae conumpion, C R c L c, can e expeed y o y C f ( w, SSW,, dmpc, X, (5 6

7 whee dmpc i he diffeence eween MPC of he old and he young and X i he veco of ohe faco, uch a houing wealh, financial wealh, liquidiy conain, and o on, ha may affec conumpion. Thi epeenaion i alo conien wih adiional life-cycle model inveigaing he ame ujec (Ando and Modigliani, 963; Bao, 974; Feldein, 974. In ho, a ummaized y (5, he ho-un effec of any geneaional anfe on oal conumpion depend on wo hing. One, he diffeence eween maginal popeniie o conume (ou of anfe fo eiee and woke. Two, he aggegaed effec of he geneaional policy on he expecaion of woke a. Theefoe, he key o undeanding if a pulic policy ha ediiue eouce eween geneaion affec naional aving equie anwe o he following hee empiical queion. Fi, doe he yem ediiue wealh hough paameic efom? Second, i hee a ignifican diffeence eween woke and eiee in em of MPC? Thid, wha ae he expecaion of he new meme in he yem? The fi and he hid queion have een dicued y many eeache (The Wold Bank, 2000; IMF. 2000; Book and Whiehoue, 2006; Aydede, 2008; TUSIAD, The conenu eing ha he Tukih PAYG yem i one of he wo ocial ecuiy yem in he wold in em of geneaional faine, which eul in a declining end in expeced SSW fo new meme of he yem eween 970 and The nex ecion anwe he econd queion. 2 Daa In he aence of ich panel daa, udie on conumpion and aving uually uild a peudo-panel o dienangle age effec fom coho and ime effec o oeve lifecycle pofile of conumpion. 7 In cona, we pecifically eek o uncove diffeence in conumpion pofile a any given ime diinguihed y age and wok au. Theefoe, we wan o peeve coho/ime effec in ou udy. The vaiaion in he MPC ha we wan o oeve come fom wok au ha may coincide wih a declining lifepan a one ge olde o ha younge geneaion can e woke and he olde geneaion eiee. Thi povide u wih a convenien oppouniy o ue pooled co-ecion daa. 7 Mo ecen udie ae Boch-Supan (2003, Deaon and Paxon (2000, and Demeay and Duck (

8 Tale : Summay Saiic R W R W R W R W Nume of Houehold 4,496 9,835,487 3,367,446 3,23,459 3,456 Include Woke/Reiee 20% 3% 7% 3% 8% 4% 8% 3% Aveage Age Male 96% 98% 94% 98% 94% 98% 95% 98% Maied 93% 97% 90% 97% 90% 97% 9% 96% Uan 82% 80% 82% 78% 82% 78% 83% 76% ducaion 33% 59% 37% 59% 34% 56% 34% 57% Aveage Value of HH ( TL Dipoale Income 826,040,030,320,88,493,309,703 Toal Conumpion ,040,32,267,262,597 Nonduale ,024,099,372 Duale Tanfe (% of Di. Inc % 4.% 65.04% 5.5% 66.0% 5.52% 66.97% 5.46% Real ae 54,000 35,000 7,000 54, ,98 87, ,448 2,073 Noe: R and W and fo Reiee and Woke, epecively. We ue he aw daa fom he Houehold Budge Suvey conduced each yea fom 2003 o 2006 y he Tukih Saiical Iniue (TUIK in Tukey. 8 ach uvey ha hee pa: infomaion on each houehold geneal chaaceiic, infomaion on each houehold conumpion, and infomaion on income, demogaphic, and employmen au of each individual in each houehold. 9 They ae he mo ecen and naionally epeenaive houehold uvey, coveing a ample of 25,920 houehold fo 2003, 8,600 fo 2004, 8,640 fo 2005 and They wee andomly choen fom all pa of Tukey y he aified muli-age yemaic clue ampling mehod aifying he OCD andad. 0 We define wo goup, woke and eiee, and 0 age coho in each uvey. The ummay of uvey fo each caegoizaion i given in Tale aove and Tale 2 elow. 8 Technical deail of he uvey can e found a he TUIK we page: 9 Vey deailed infomaion on conumpion and income i he unique chaaceiic of he uvey. Fo example, he uvey povide daa on moe han 200 diffeen ype of conumpion expendiue. 0 Thi i no applicale o ealie uvey conduced in 2002, 994, and

9 lnaveal Figue : Age Pofile of Income, Conumpion, and Illiquid Wealh headage Income Conumpion Head Age The goup of eiee include houehold whoe head ae eied, no woking, and ae eceiving pulic annuiy paymen fom one of he hee pulic ocial ecuiy iniuion. 2 If he head of he houehold i cuenly employed and coveed y one of he pulic cheme, he houehold i claified in he goup of woke. We define egion whoe populaion i moe han 20,000 a uan. Laly, he hehold fo educaion i elemenay o highe chool degee. A quick viual inpecion how he impoance of pulic ocial ecuiy in he eiee live: almo wo-hid of hei dipoale income come fom anfe paymen. Anohe ineeing poin i he fac ha eiee eem o have moe wealh in eal eae han woke. 3 A een in Figue aove, which ue he pooled daa, 4 dipoale income, and conumpion inceae in ealy age and fall a he head of he houehold ge olde, while wealh in eal eae (moly houing doe no how he ame end. Thi can e explained y capial make impefecion and pevailing eque moive in exended familie. Thee faco may alo amplify he diffeence eween woke and olde individual in em of he MPC. Unceainy in he aence of pivae annuiy make eak he link eween oday and he fuue and lead o high peonal dicoun fo fuue eaning in younge age. Theefoe, a hey ge olde (o appoach eiemen, individual conide axe paid in he pa a unk and annuiy paymen a unexpeced, which may no e equeahed u conumed y olde individual. A a eul, i would e likely o oeve an inceaing end in he MPC ou of income (ou of liquid wealh, while individual may no e ale o diave a hey ge olde. The gaph ue aveage value in log. 2 A eied houehold head who keep woking i no included in hi goup. 3 Real eae wealh epeen a peceived value. 4 We deflaed he value o 2003 y uing he conume pice index. 9

10 Tale 2: Summay Saiic y Age Coho Nume of Houehold 690 3,477 5,986 7,043 7,502 6,393 6,393 4,49 3,304 6,753 Demogaphic of HHH Aveage Age Male 84% 94% 95% 94% 94% 92% 9% 88% 86% 8% Maied 38% 92% 96% 95% 94% 92% 90% 87% 83% 74% Uan 78% 8% 77% 73% 73% 7% 70% 66% 63% 62% mployed 75% 92% 93% 92% 88% 75% 60% 48% 39% 26% LFPR 79% 95% 96% 95% 92% 78% 62% 50% 40% 26% ducaion 56% 56% 5% 44% 43% 39% 34% 28% 8% 3% Coveed Woke 37% 6% 59% 60% 58% 42% 25% 2% 7% 3% Uncoveed Woke 5% 33% 36% 35% 34% 44% 59% 76% 83% 87% Reied 2% 2% 4% 5% % 34% 55% 70% 74% 80% HH ha Pivae Penion/Healh In. % % 2% 2% 2% 2% 2% 2% % % Ca 8% 7% 24% 28% 32% 32% 33% 28% 9% 3% Sick Meme 3% 2% 6% 9% 25% 29% 38% 43% 5% 57% Houing De 49% 56% 59% 57% 56% 56% 54% 49% 40% 3% Acce o Financial Make 7% 25% 3% 29% 3% 3% 29% 23% 6% 0% Aveage Value of HH ( TL. Dipoale Income , Toal Conumpion Tanfe (% of Di. Inc. 25% 6% 5% 5% 7% 6% 24% 33% 34% 39% Wealh in Real ae 52,200 5,400 73,00 7,000 5,000 53,000 93,000 70,000 83,000 6,000 The ummay of he fou uvey y age coho i given in Tale 2 aove, whee eveal impoan poin ae woh menioning. Due o he lack of a equied minimum eiemen age and eay ealy eiemen oppouniie hough diailiy, 5 all age goup include eied houehold, and hei hae eache pecen a age and 34 pecen a age Moeove, he popoion of houehold who wok wihou ocial ecuiy coveage i highe han 33 pecen fo all age goup and inceae fo olde coho ecaue of he exience of an implici ax penaly fo eiee who keep woking in fomal eco. Ineeingly, lao-foce paicipaion ae fo houehold head ae much highe han he naional aveage, which i aound 55 pecen. 5 The minimum eiemen age i e a 58 y he efom in

11 Figue 2: Aveage Age of Houehold Head y Age of Individual fo AVHHHAG Age The uvey in ou udy collec infomaion on conumpion fo houehold no fo individual. 6 Thi epeen a paicula polem in developing counie whee he olde meme in exended familie ae uually efeed o a houehold head, even if hey ae no he pimay income eane. Fo example, a ingle 70-yea-old fahe who eceive only a eiemen income can e hown a he head of a muligeneaional houehold in uvey while acually ohe meme a diffeen lifecycle age make conumpion and income deciion fo he family. To undeand he ia ha hi polem migh inoduce o age-conumpion pofile, we plo he aveage age of each individual houehold head again he individual age in Figue 2 aove. If eveyone wee a houehold head, he gaph would plo a 45-degee line. In geneal, he plo ha lie aove he 45-degee line indicae ha young adul live wih hei paen. While he diconnecion eween he houehold head and he individual age ge woe a age efoe 30 and afe 70, i i no o damaic eween hee age. A agued y Deaon and Paxon (2000, hi eviden ia affec he eimaion y moohing diffeence in he MPC paiculaly fo age elow 30 and aove Diffeence in MPC ven hough he pecificaion of convenional conumpion funcion ha ecome inceaingly moe ophiicaed ove he yea, a ypical udy inveigaing ageconumpion pofile e change in conumpion due o change in income, wealh, expecaion, and ohe conol vaiale. A aed efoe, ou empiical ojecive i o e whehe hee i a ignifican diffeence in MPC of eiee and woke ha uaniae he negaive impac of ediiuion hough paameic efom a hown y (5 aove. Conequenly, ou eimaing famewok ake he following fom: 6 ven hough hee ae way o eimae conumpion a he individual level fom houehold infomaion, he eimaion uually ue houehold conumpion y he age of houehold head ahe han y he age of individual.

12 c i R PDI Z u ' 0 i 2 i i i, (6 whee R and PDI epeen he oal ae in eal eae and peonal dipoale income (including all fom of ne govenmen anfe, epecively. Z i a e of dummy vaiale, which we will define lae in he egeion analyi. The ucip i and fo each houehold and u i fo he faco ha may have effec on conumpion u no defined in he funcion. In eimaing β 2 in quaion (6, we conol he ize of houehold y finding value fo pe-adul equivalen peon adjued y he OCD equivalen cale. 7 To ee he eniiviy of hi elecion, we alo eimae he ame egeion y ( including he nume of peon living in he ame houehold a a epaae vaiale, and (2 calculaing pe-peon value y dividing houehold value y he nume of people living in he houehold fo each yea. In addiion, ecaue he elecion of houehold head i lef o family meme duing he uvey, we eaign he poiion of head of he houehold o he pimay income eane in each houehold and eeimae he egeion. To conol fo he ohe faco ha migh influence he houehold conumpion ehavio, we ue he following dummy vaiale: ducaion =, if HHH educaion i highe han elemenay chool Inde =, if HH ha a financial de in houing AFM =, if anyody in he HH ha a cedi cad and/o financial ae Sex =, if HHH i male Ca =, if HH ha a ca Maied =, if HHH i maied Sick =, if anyody in HH i ick and unde coninuou eamen Life =, if HH ha pivae life and/o healh inuance Uan =, if HH live in a egion ha ha a populaion of moe han 20,000 people mployed =, if HHH ha a paying jo Reied =, if HHH eceive eiemen enefi fom a pulic ocial ecuiy cheme Infomal =, if HHH ha a paying jo wihou pulic ocial ecuiy coveage whee HH and HHH epeen houehold and houehold head, epecively. Specifically, we define a dummy vaiale, Ca, ecaue we expec anpoaion co wih vey high ga pice o affec he houehold conumpion deciion. In addiion, we conol he houehold ailiy o acce financial make and hei willingne o educe ik expoue y wo epaae vaiale: AFM and Life. The main explanaoy, dipoale houehold income, cove he la 2 monh and include all cah and in-kind eaning, uneaned income fom financial invemen, all 7 The OCD cale aume ha he fi adul weigh i, ohe adul have weigh of 0.7, and he childen have a weigh of

13 anfe fom pivae and pulic eouce, and impued en fo owne-occupied dwelling, ne of axe and adjued y he conume pice index. Conumpion, on he ohe hand, cove he la monh expendiue on nonduale good and evice and include he value of one-welfh of he duale good. In addiion o puchaed iem, i alo include gif, donaion, finge enefi fom employe, and conumpion fom he houehold own poducion. We ake he monhly aveage of annual dipoale houehold income in all egeion. Tale 3 elow ummaize he egeion eul fo all yea uing pe-adul value adjued y he OCD equivalen cale. Tale 3: Regeion Reul fo MPC Coho C C2 C3 HHH C C2 C3 HHH C C2 C3 HHH C C2 C3 HHH Noe: C, C2, and C3 epeen hee diffeen mehod of conolling houehold ize: pe adul equivalen value y OCD cale (C, pe peon value (C2, and unadjued value wih houehold ize a a epaae vaiale (C3. We alo eeimaed he egeion y giving headhip o he meme whoe income wa he highe. The eul ae given unde HHH. All coefficien ae ignifican a pecen confidence level wih ou andad eo. Figue 3: MPC y Age Goup The fi hing o oeve i ha olde age coho do no have conienly highe MPC han younge coho. In fac, a hown in Figue 3 aove, hee i a evee end in Howeve, hi eul hould e aken cauiouly. Fi of all, he expeced u-haped 3

14 MPC paen cove an individual lifepan, which, unlike ou, need a coho analye ahe han a ingle-yea e. Second, a explained efoe, ecaue we ue infomaion on houehold, he coefficien undeeimae he ue MPC fo olde age coho. Finally, Tukey ha vey young eiemen age due o he lack of minimum eiemen age and eay ealy eiemen opion hough he diailiy coveage. 8 Thee ae a ignifican nume of eiee in evey age goup who moly wok in widepead infomal eco ecaue of ax penalie fo eiee who keep woking. ven hough we conol fo hee faco in he egeion, hey ill impac age-conumpion pofile. xcep fo he fi age goup, having a ca, acce o financial make, and living in uan aea have ignifican and poiive effec on conumpion (eul ae no hown. Conien wih he effec of eal eae wealh on conumpion, financial de in houing doe no have a ignifican impac on conumpion fo mo age goup, and i ecome negaive fo olde age goup. The inignifican effec of maiage and ex on conumpion may come fom he negligile hae of female and/o ingle houehold head imila o houehold wih pivae life/healh inuance. A expeced, eiemen affec conumpion poiively a olde age. Ineeingly, employmen au ha no conien ign fo all age goup and no ignifican effec on conumpion. Thi can e explained y he widepead exience of exended familie whee he houehold head income i only a mall facion of he oal houehold income. Alhough i i no ignifican, having o wok in an infomal eco in lae age ha negaive effec on conumpion. Finally, a ou eul imply, having an elemenay o highe chool degee alway pay ack. If he ocial ecuiy yem ha well-defined age equiemen and ule fo eiemen eligiiliy, a in mo developed counie, age-conumpion pofile may coincide wih wok au pofile. Howeve, when hee i no minimum eiemen age and moe han half of he adul populaion i ou of a lao foce whoe lage poion wok in infomal eco, a diiuive apec of a PAYG yem hould e analyzed eween woke and eiee of he yem. Tale 5 how he e eul of conumpion pofile fo woke and eiee. 8 A young a 47 fo men and 38 fo women, he lowe in he wold (The Wold Bank, The aveage minimum eiemen age fo OCD counie ae 64.4 fo men and 63.9 fo women in 2002 (OCD,

15 Tale 5: Regeion Reul wih OCD quivalen Scale Reiee Woke Reiee Woke Income Real ae ducaion Sex Maied Uan Ca Inde Sick AFM Life con # of o. 4,496 9, F R-quaed C C HHH Income Real ae ducaion Sex Maied Uan Ca Inde Sick AFM Life con # of o F R-quaed C C HHH Noe: I ue ou andad eo. The poailiy ha he coefficien i no diffeen fom zeo i given nex o each coefficien. C2, C3, and HHH ae defined efoe. Since he value in 2005 ae expeed in YTL (YTL =,000,000 TL, he coefficien ae malle. Unlike age-conumpion pofile, eiee have highe MPC han woke in all fou yea, and he co diffeence ae ignifican a he pecen level. Thi oucome i no 5

16 eniive o he mehod of conolling houehold ize and he elecion of houehold head. Becaue we claify houehold accoding o he head wok au, imila o he ia in age-conumpion pofile, we may have houehold, fo example, whoe head ae eied u he e ae woke. A he figue in Tale how, almo 20 pecen of eied houehold have one o moe woke, while i i 4 pecen fo woke wih a lea one eiee in he houehold. In ode o ee i effec on eimaion, we eeimaed he egeion y conolling whehe a eied (woke houehold ha a woke (eiee. The eul how ha conolling i inceae he MPC fo eiee u doe no affec woke. In addiion, he egeion eul eveal impoan infomaion aou he ohe faco ha affec conumpion. Fo example, even hough i ign i poiive, a peceived value of wealh in eal eae doe no have ignifican effec on conumpion, pehap due o impefec capial make and he fac ha income fom dwelling plu impued en ae in aleady dipoale income. A expeced, highe educaion o having a ca i indicaive of highe pending. The effec of acce o financial make on conumpion ha a conien poiive ign fo all yea u only ignifican fo 2003 and Ineeingly, while locaion of houehold ha a ignifican and poiive effec on conumpion fo woke, i ha negaive u inignifican effec fo eiee. 4 Concluion Tukey i a unique cae in he lieaue due o i vey geneou u unuainale ocial ecuiy yem. Since 999, hee have een hee majo paameic efom aimed a coecing he yem long-em alance. All of he hee efom ued a phaed-in appoach o uaining he long-un financial viailiy of he pogam. The duaion of hi ecovey, afe hee majo efom, will e moe han 50 yea. Thee i no dou ha he efom coniue ignifican wealh diiuion fom woke o eiee duing hi peiod; he magniude of which ha een calculaed y Book and Whiehoue (2006. Thee have een many udie deaing acuaial and financial apec of hee efom, excep fo hei impac on economic dynamic. Thi pape i he fi of i kind ha aemp o ae he diiuional effec of paameic PAYG efom on aving in Tukey. I fi develop a wo-peiod ovelapping geneaion model whee wealh diiuion i iniiaed y an advee hock o a PAYG yem. Unlike ohe empiical udie looking fo diffeence in ageconumpion pofile, we ague ha, when anfe ae ued o alance he yem wih no equied minimum eiemen age, an inceae in oal conumpion ciically depend on diffeence in he MPC of woke and eiee ahe han hoe of age coho. Uing a vey lage daa e including moe han 50,000 houehold colleced y he Houehold Budge Suvey ove fou yea fom 2003 o 2006, we e he MPC of agecoho a well a ha of woke and eiee. Ou eul ae ou and indicae ha, while he MPC i no highe fo olde geneaion, i i ignificanly highe fo eiee han fo woke. Alhough hi fac ha een confimed, i doe no pomie a educion in naional aving. The eul imply ha, a long a paameic efom coniue wealh anfe fom woke o eiee, he ecen paameic efom will coniue o he cuen negaive end in naional aving. 6

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18 Feldein, M. (974. Social Secuiy, Induced Reiemen, and Aggegae Capial Accumulaion. Jounal of Poliical conomy, Vol. 82, No. 5, Hud, M., Michaund, P. C., & Rohwedde S. (2009. The Diplacemen ffec of Pulic Penion on he Accumulaion of Financial Ae. Michigan Reiemen Reeach Cene. Reieved June 3, 200, fom hp:// IMF (Inenaional Moneay Fund. (2000, Feuay. Tukey: Seleced Iue and Saiical Appendix. IMF Saff Couny Repo No. 00/4. Reieved June 5, 200, fom hp:// (2007, Noveme. Tukey: Seleced Iue. IMF Couny Repo No. 07/364. Reieved June 5, 200, fom hp:// 2007/c07364.pdf Kolikoff, L. J. (2003. Geneaional Policy (The Caioli Lecue. Camidge, MA: MIT Pe. Miniy of Lao and Social Secuiy. (2004, July 29. Popoal fo Refom in he Social Secuiy Syem (Daf Tex. OCD (Oganiaion fo conomic Co-opeaion and Developmen. (2004. Penion a a Glance. Pulic Policie aco OCD Counie. Pai: OCD. Seidman, L. (985. A Geneal quiliium Ciique of Feldein Social Secuiy imae. aen conomic Jounal, Vol. XI, No.2, The Wold Bank, (2000. Tukey: Couny conomic Memoandum Sucual Refom fo Suainale Gowh. Repo No TU, Wahingon D.C. TUSIAD Tukih Induiali and Buineman Aociaion. (2004. Refom in he Tukih Reiemen Syem. No: TUSIAD-T/2004-/382. Reieved June 0, 200, fom hp:// 3C0A600F3920AAC A?OpenDocumen 8