The Laffer Effect at Turkish Social Security Administration's Premium Revenue

Abstract

This study is an attempt to analyse and deep the insurance premium rate/load as a factor that influences the premium revenues for the Social Security Administration by using the Laffer curve logic and to identify the premium load that maximizes premium revenues and the improvement it would bring to the Administration. Turkish Social Security system separates the employees three main groups: Indıvıduals working on service contract who are subject to SSK(Social Insurance Administration), Individuals working on their own names and accounts who are subject to Bag-Kur(Craftsmen And Artisans And Other Self-Employed Social Insurance Institution) and public employees who are subject to ES (Retirement Fund General Directorate) before the social security reform. The previous study, “Model Proposal for Investigating and Increasing the Social Security Administration's Premium Collection Revenue” analysed the relationship between the premium revenue and premium rate/load for all the employees and make a total analyse for premium rate and revenue. In this study it will be focused on: Indıvıduals working on service contract who are subject to SSK(Social Insurance Administration) before the reform.The monthly data for the period between October 2008 and December 2012 were used in the study. The results of the analysis revealed a significantly parabolic relationship between the Administration's premium revenues and insurance premium load, which is similar to the Laffer curve. The insurance premium rate that would maximize the Administration's premium revenues was found to be 36.9% and it was determined that an improvement amount of 6.8 billion TL would have been obtained for the premium revenues in 2012 if this rate had been applied. In fact the explanatory power of this study (%96) is more than the explanatory power of previous study (%80) because the ex-study consisted of the public employees and trades people whose elasticity is lower against the social security premium rate.