Spillovers in pension incentives and the joint retirement behavior of Spanish couples

This paper explores how husbands’ and wives’ retirement behavior is influenced by their own financial incentives from Social Security and private pensions and by “spillover effects” from their spouses’ incentives. Spillover effects are possible due to income effects and complementarity of leisure; if significant, their omission will bias estimates of the effect of changing Social Security policy on retirement. We estimate conditional and unconditional (to the status of the partner) reduced-form models and document some key results. First, married men are more responsive to their incentives than married women: a ten percentage point higher marginal tax on working results in a 0.9% increase in the baseline probability to exit the labor force for men and a 0.1% for women. Second, men are very responsive to their wives’ financial incentives but that women are not responsive to their husbands’ incentives. Policy simulations, however, indicate that omitting spillover results in very moderate biases when estimating the effect of a policy change on the probability of working.