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Is Social Assistance Contributing to Higher Informality in Turkey?

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  • Angel-Urdinola, Diego F.
  • Haimovich, Francisco
  • Robayo, Monica

Abstract

Although still low for European standards, investments in Social Assistance (SA) transfers in Turkey have been increasing in recent years. The government is expanding access to subsidized health for individuals in the informal sector through a rapid expansion of the Green Card program. Generous non-contributory programs, such as the Green Card, may create perverse incentives for individuals to join or remain in the informal sector as they can access free services without paying taxes and/or contributions, thus potentially being able to get higher “net” labor earnings than in the formal sector. Despite the fact that the Green Card is a large and generous program offered to individuals in the informal sector, empirical analysis in this report does not find an actual impact of the program (or of its rapid expansion) on informality. The reason behind this finding is the existence of a very large differential in wages between formal and informal workers explained by differences worker’s productivity. Low-wage workers facing the possibility to move from the informal sector to the formal sector would have strong incentives to do so even if this would imply losing all SA benefits. As such, the expected monetary and job security gains of having a formal job dominate those of having an informal job even after accounting for SA transfers.

Suggested Citation

  • Angel-Urdinola, Diego F. & Haimovich, Francisco & Robayo, Monica, 2009. "Is Social Assistance Contributing to Higher Informality in Turkey?," MPRA Paper 27675, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27675
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    File URL: https://mpra.ub.uni-muenchen.de/27675/1/MPRA_paper_27675.pdf
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    References listed on IDEAS

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    Cited by:

    1. Xavier Jara & David Rodríguez, 2019. "Financial disincentives to formal work: Evidence from Ecuador and Colombia," WIDER Working Paper Series wp-2019-14, World Institute for Development Economic Research (UNU-WIDER).
    2. World Bank, 2010. "Turkey - Country Economic Memorandum Informality : Causes, Consequences, Policies," World Bank Publications - Reports 2843, The World Bank Group.

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    More about this item

    Keywords

    Informality; Social Assistance; Green Card; Turkey;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions

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