Essays on retirement: the challenges of informality and uncertainty.

Summary This thesis proposes an analysis of pensions in the context of an economy characterized by informal employment and the presence of income risk. The first chapter provides a historical perspective on pensions in Turkey, taking into account the underlying socio-economic dynamics and social policies. It suggests that structural economic problems and inadequate social policies have reinforced the relationship of informality to the labor market and contributed to the development of social support mechanisms that complement public insurance. The second chapter develops a general equilibrium model of an economy where informal employment is made possible by a random and imperfect tax audit and where public pensions and a social support norm coexist. In equilibrium, an uncertain audit induces informal employment and increases the level of capital through a decrease in the average cost of labor, while social support replaces public pensions.The third chapter introduces a partial equilibrium analysis through evolutionary dynamics where preferences to work in the informal sector can be observed when there are non-market insurance possibilities substituting public pensions. When political competition is introduced, the results show that governments may neglect measures on informality to win elections. The final chapter analyzes pensions at the level of individual choices between pay-as-you-go and pay-as-you-go when individuals face income risks and may behave in a myopic manner. The income risk and myopia hypotheses reveal the role of administrative costs, tax exemptions, and government as regulators of funded pensions. The results also show that low-income and myopic agents may underestimate the contributions they have to make, the impact of contributions on total accumulation, and suffer a loss of welfare in retirement.