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Seriously Strengthening the Tax-Benefit Link

Author

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  • Portugal, Pedro

    (Banco de Portugal)

  • Raposo, Pedro

    (Universidade Catolica Portuguesa, Lisbon)

Abstract

On January 1st 1994 Portugal introduced, for the first time, inflation indexation in the old-age pension formula. This change considerably decreased the uncertainty regarding the perception of the link between the stream of labor earnings and future pensions. The effect of indexation was large and, by itself, increased the expected pension amount by 28% in real terms. Individuals appear to have reacted to the policy change: labor earnings increase significantly during the eligible years approaching retirement age.

Suggested Citation

  • Portugal, Pedro & Raposo, Pedro, 2015. "Seriously Strengthening the Tax-Benefit Link," IZA Discussion Papers 8785, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8785
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    More about this item

    Keywords

    pension policy reform; hours; earnings; tax-benefit link;
    All these keywords.

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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