Determinants of Private Saving in Turkey: An Update
The Turkish private saving rate has declined over time and is currently low in international comparisons, in particular relative to developing Asia. This paper provides an update and extension of an earlier ERF paper on the same topic, based on 3 additional years of household survey data and revised demographic data. It also brings macro data as well as ISE corporate saving data to bear on questions related developments in total and corporate saving. An equation estimated on macro data for Turkey for 1988 2009 suggests that the decline in private saving is related to fiscal consolidation, an increase in credit availability, and a reduction in uncertainty (as proxied by inflation) following stabilization of the economy. Household budget survey data for 2004 08 show that a wealth effect also appears operative, with households who own their homes responding strongly to the business cycle (compared to tenants) Available corporate saving data for firms listed on the Istanbul Stock Exchange indicates that the key determinant of corporate saving appears to be profits, not dividend payments. The results suggest that, as financial deepening resumes after the current crisis, the private saving rate may decline again (directly, as credit becomes more widely available, and through a wealth effect if this increase in credit contributes to a rise in real estate values) We also find, based on Turkstat demographic projections, that demographic changes a reduction in the youth dependency ratio combined with an increase in the old age dependency ratio will be at best neutral for the private saving rate. Meanwhile, reforms to social security may stimulate private saving over time, but this is uncertain as the social security reform also includes a lengthening of the contribution period, which should reduce private saving for retirement. The study concludes with policy prescriptions.