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Retirement Responses to a Generous Pension Reform: Evidence from a Natural Experiment in Eastern Europe


  • Danzer, Alexander M.

    () (Catholic University of Eichstätt-Ingolstadt)


The retirement decision is under researched in developing and emerging countries, despite the topic's close relation to many development issues such as poverty reduction and social security, and despite the fact that population ageing will increasingly challenge the developing world. This paper uses a natural experiment from Ukraine to estimate the causal effect of a threefold increase in the legal minimum pension on labor supply and retirement behaviour at older ages. Applying difference-in-difference and regression discontinuity methods on two independent nationally representative data sets, the paper estimates a pure income effect that caused additional retirement of 30 to 47 percent. Additional evidence suggests that retirement incentives are stronger at the lower tail of the educational distribution and that the strict Labor Code curbed responses at the intensive labor supply margin. Although the substantial pension increase provided strong disincentives to work and put a heavy fiscal burden on Ukraine, it significantly reduced the propensity of falling into poverty for those in retirement.

Suggested Citation

  • Danzer, Alexander M., 2010. "Retirement Responses to a Generous Pension Reform: Evidence from a Natural Experiment in Eastern Europe," IZA Discussion Papers 4726, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4726

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    References listed on IDEAS

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    Cited by:

    1. Darwin Cortés & Darío Maldonado & Giselle Vesga, 2015. "Parametric Pension Reform and the Intensive Margin of Labor Supply, Evidence from Colombia," DOCUMENTOS DE TRABAJO 012476, UNIVERSIDAD DEL ROSARIO.
    2. Chen, Zeyuan & Bengtsson, Tommy & Helgertz, Jonas, 2015. "Labor Supply Responses to New Rural Social Pension Insurance in China: A Regression Discontinuity Approach," IZA Discussion Papers 9360, Institute for the Study of Labor (IZA).
    3. Chen, Zeyuan & Bengtsson, Tommy & Helgertz, Jonas, 2015. "Labor Supply Responses to New Rural Pension Insurances in China: A Regression Discontinuity Approach," Lund Papers in Economic History 139, Lund University, Department of Economic History.
    4. Sergi Jiménez-Martín, 2014. "The Incentive Effects of Minimum Pensions: extended version," Working Papers 2014-04, FEDEA.
    5. World Bank, 2013. "Europe 2020 Romania : Evidence-based Policies for Productivity, Employment, and Skills Enhancement," World Bank Other Operational Studies 16255, The World Bank.

    More about this item


    minimum pension; poverty; retirement; difference-in-differences; regression discontinuity; pure income effect; labor supply;

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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