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Expected Social Security Wealth Simulations and Generational Fairness of the Turkish PAYG System

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  • H. Yigit Aydede

Abstract

As it evolves around the world, Social Security financed on pay-as-you-go (PAYG) basis increasingly becomes a Ponzi scheme due to aging populations. The main objective of Social Security is to insure seniors against an uncertain life span. However, as the probability of being a net loser rises for coming generations, this objective receives questions with increasing public confusion: how does Social Security affect lifetime wealth? How could one calculate financial terms of Social Security for households in different generations? This paper calculates the aggregate social security wealth (SSW) series for the first time for an emerging country, Turkey. The simulations cover the period between 1970 and 2003 and the results show that the anticipated SSW is the biggest part of household wealth in Turkey and therefore it should not be ignored in economic studies. This paper also analyzes the redistributive characteristics of the system to understand its generational fairness by calculating its implicit internal rate of return and the net gains and losses from participating in the system for representative individuals in different age cohorts. The principal finding is that Social Security in Turkey constitutes significant wealth transfers among different age cohorts.

Suggested Citation

  • H. Yigit Aydede, 2007. "Expected Social Security Wealth Simulations and Generational Fairness of the Turkish PAYG System," NFI Working Papers 2007-WP-21, Indiana State University, Scott College of Business, Networks Financial Institute.
    • Handle: RePEc:nfi:nfiwps:2007-wp-21
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    File URL: http://www.indstate.edu/business/sites/business.indstate.edu/files/Docs/2007-WP-21_Aydede.pdf
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    References listed on IDEAS

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    Cited by:

    1. H. Yigit Aydede, 2008. "A Dynamic Inconsistency Problem in PAYG: A Solution to the Turkish Puzzle," NFI Working Papers 2008-WP-07, Indiana State University, Scott College of Business, Networks Financial Institute.
    2. Damla Haciibrahimoglu & Pinar Derin-Gure, 2013. "Generational Accounting in Turkey," ERC Working Papers 1301, ERC - Economic Research Center, Middle East Technical University, revised Jan 2013.

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    More about this item

    Keywords

    Household Wealth; Social Security Wealth; Intergenerational Wealth Transfers; Internal Rate of Return of PAYG;
    All these keywords.

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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