Benefit-Cost Analysis of Turkish Social Insurance Institute's Gradual Privatization Proposal

Journal of Economic Cooperation, Vol. 26, No. 4, pp. 87-126, 2005

40 Pages Posted: 17 Jan 2006

See all articles by Erdal Gumus

Erdal Gumus

Eskisehir Osmangazi University - Department of Public Finance

Abstract

There has been consideration of alternative social security financing methods throughout the world during the last two decades. One alternative adopted in several countries is the privatization of so-called pay-as-you-go financing systems. The purpose of this study is to estimate social benefits and social costs associated with a Feldsteinian-type gradual privatization of the Turkish Social Insurance Institute, SSK. Based heavily upon data provided by the International Labor Organization, financial projections of the institution were made and extended to apply benefit-cost models of privatization. Present values of the change in net social benefit were estimated. The effect of privatization on representative individuals has been quantified. Sensitivity analyses were conducted to determine the robustness of the estimates. Benefit-cost results indicate that social benefits associated with a privatization alternative exceed the social costs even after adjustments for changes in key parameters that reduce social net benefits. However, privatization affects current representative individuals so negatively that it may constitute a good political reason to be against, rather than in favor of, choosing privatization.

Keywords: social security, privatization, benefit-cost analysis, Social Insurance Institute, SSK

JEL Classification: H5, H55

Suggested Citation

Gumus, Erdal, Benefit-Cost Analysis of Turkish Social Insurance Institute's Gradual Privatization Proposal. Journal of Economic Cooperation, Vol. 26, No. 4, pp. 87-126, 2005, Available at SSRN: https://ssrn.com/abstract=876224

Erdal Gumus (Contact Author)

Eskisehir Osmangazi University - Department of Public Finance ( email )

Meselik Campus
Eskisehir, 26480
Turkey
+222 239 37 50/1751 (Phone)

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