The Effect of Pension Subsidies on the Retirement Timing of Older Women: Evidence from a Kink Design in Germany

Abstract

I estimate the effect of additional pension benefits on women’s retirement decisions by examining a German pension subsidy program for low-pay workers. The subsidies have a kinked relationship with the recipients’ past contributions, creating a sharply different slope of benefits for similar women on either side of the kink point. I find that a 100 euro increase in the monthly benefit induces female recipients to claim their pensions eight months earlier. A back-of-the-envelope calculation suggests that the ratio of behavioral to mechanical costs for this subsidy program is 0.3, which is smaller than that of other income support programs.

Keywords: pension subsidy, pension generosity, retirement, regression kink design

JEL Classification: H55, J18, J21, J26