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Government Subsidized Individual Retirement System

Author

Listed:
  • Okan Eren
  • Serife Genc Ileri

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.

Suggested Citation

  • Okan Eren & Serife Genc Ileri, 2015. "Government Subsidized Individual Retirement System," Working Papers 1520, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1520
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2015/15-20
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    Cited by:

    1. Eren, Okan & Genç İleri, Şerife, 2022. "Life cycle analysis of savings accounts with matching contributions," Economic Modelling, Elsevier, vol. 116(C).

    More about this item

    Keywords

    Household Saving; Fiscal Policy; Private Pension Accounts;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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