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2006 OECD Economic Surveys: Turkey 2006

image of OECD Economic Surveys: Turkey 2006

This edition of OECD's periodic survey of the Turkish economy presents an overview of recent economic performance and suggests that Turkey needs to improve management of economic risks and resilience to shocks.  It discusses enhancing competitiveness and growth through regulatory simplification, which should also reduce incentives to operate in the informal economy.  It alo assesses the pension system, making quality education accessible to the whole population, and freeing the potential of agriculture.

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Making the Pension System Less of an Obstacle to Formalisation

Recent social security reform has significantly improved the long-run sustainability of the pension system. However, the pension system continues to serve as an important barrier to a more rapid expansion of the formal-sector economy in two ways. First, early-retirement incentives (including severance payments) continue to push many middle-aged workers into the informal sector. Second, even when the transition to the new pension rules is complete, net replacement rates will remain very high by OECD standards, requiring high social security contribution rates that make it too expensive for firms to employ low-skilled labour in the formal sector. Thus, further pension reform is one of the keys to overcoming Turkey’s economic duality. Finally, since the pension system does not cover the informal sector, it does little to alleviate poverty among the wider population of older people. This chapter discusses a number of reforms that would increase the retirement age, reduce intergenerational inequities, and permit a significant cut in the tax wedge on labour, while better addressing old-age poverty concerns at all levels of income.

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