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The Pension Traps of Northern Cyprus

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  • Hasan U. Altiok

    (Eastern Mediterranean University, Cyprus)

  • Glenn Jenkins

    (Queen's University, Canada and Eastern Mediterranean University, Cyprus
    Queen's University, Kingston, Canada)

Abstract

This paper reviews how the Pay-As-You-Go (PAYGO) Civil Service and Social Security pension systems in North Cyprus enabled policy makers to make promises to the Turkish Cypriot residents to retain them on the Island following a long protracted civil war. Unfortunately, the success of this policy has created a relatively huge unfunded pension liability that is becoming an increasingly heavier burden on both the labor force and the general taxpayer. Estimates are presented here of the difference between the present values of future contributions to be made and the pension benefits to be received by those currently retired and those who are contribution now but will retire in the future. The analysis covers the period from 2009 until the last person now contributing to these systems first retires and then dies. Various policy reform options are also examined in this study. The estimated unfunded liability of these pension plans is found to be so large that none of the conventional policy reforms used in the EU is effective in fixing the fiscal imbalances already created by past policies. Structural reforms such as moving towards private pension plans with tax incentives for contribution, and perhaps at the same time administering a high rate social insurance contribution system in lieu of a personal income tax seems to be more promising strategy.

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Bibliographic Info

Paper provided by JDI Executive Programs in its series Development Discussion Papers with number 2012-03.

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Length: 17 pages
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Handle: RePEc:qed:dpaper:220

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Related research

Keywords: pay-as-you-go; social security; pension liabilities; reforms;

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References

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  1. Hasan U. Altiok & Glenn P. Jenkins, 2013. "Social security generosity, budgetary deficits and reforms in North Cyprus," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(2), pages 218-235, June.
  2. Jeffrey R. Brown & Robert L. Clark, 2011. "The Economics of State and Local Pensions," NBER Books, National Bureau of Economic Research, Inc, number brow11-1, October.
  3. Jeffrey R. Brown & Robert Clark & Joshua Rauh, 2011. "The Economics of State and Local Public Pensions," NBER Working Papers 16792, National Bureau of Economic Research, Inc.
  4. Bernardi, Luigi & Barreix, Alberto & Marenzi, Anna & Profeta, Paola, 2007. "Tax systems and tax reforms in Latin America: country studies," MPRA Paper 5223, University Library of Munich, Germany.
  5. Hasan U. Altiok & Glenn P. Jenkins, 2011. "The Fiscal Burden of the Legacy of the Civil Service Pension Systems in Northern Cyprus," Working Papers, Queen's University, Department of Economics 1284, Queen's University, Department of Economics.
  6. Monika Queisser & Edward R. Whitehouse, 2006. "Neutral or Fair?: Actuarial Concepts and Pension-System Design," OECD Social, Employment and Migration Working Papers 40, OECD Publishing.
  7. Mustafa Besim & Glenn Jenkins, 2005. "Tax compliance: when do employees behave like the self-employed?," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(10), pages 1201-1208.
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