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Dynamic Incentives in Retirement Earnings-Replacement Benefits

Author

Listed:
  • Andrés Dean

    (UDELAR)

  • Sebastian Fleitas

    (PUC-Chile and CEPR)

  • Mariana Zerpa

    (University of Chile and IZA)

Abstract

We analyze dynamic incentives in pension systems created by the use of a small set of final years of earnings to compute benefits. Using social security records and household surveys from Uruguay, we show that self-employed workers and some employees of small firms respond to these incentives by increasing reported earnings in the benefit calculation window. We find evidence that suggests that these responses are explained by changes in earnings reporting and not in total earnings or labor supply. Back-of-the-envelope calculations indicate that this behavior increases the cost of pensions by about 0.2% of the GDP.

Suggested Citation

  • Andrés Dean & Sebastian Fleitas & Mariana Zerpa, 2024. "Dynamic Incentives in Retirement Earnings-Replacement Benefits," The Review of Economics and Statistics, MIT Press, vol. 106(3), pages 762-777, May.
    • Handle: RePEc:tpr:restat:v:106:y:2024:i:3:p:762-777
    DOI: 10.1162/rest_a_01193
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    More about this item

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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