Benefit-Cost Analysis of Reforming the Turkish Social Insurance Institution for the Self-Employed (Bağ-Kur)

Abstract

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 for Self –Employed Persons, “BK”. Based on data provided by the International Labor Organization, financial projections of the institution were made and extended to apply benefit cost model of privatization. Present value of the change in net social benefit was estimated. The effect of privatization on representative individuals has also been quantified. 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, Bag-Kur, Turkey, privatization, benefit-cost analysis

JEL Classification: H5, H55