Seriously Strengthening the Tax-Benefit Link

33 Pages Posted: 31 Jan 2015

See all articles by Pedro Portugal

Pedro Portugal

Bank of Portugal - Research Department; New University of Lisbon; IZA Institute of Labor Economics

Pedro S. Raposo

Tilburg University - Center for Economic Research (CentER)


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.

Keywords: pension policy reform, hours, earnings, tax-benefit link

JEL Classification: J14, J26, J31

Suggested Citation

Portugal, Pedro and Raposo, Pedro S., Seriously Strengthening the Tax-Benefit Link. IZA Discussion Paper No. 8785, Available at SSRN:

Pedro Portugal (Contact Author)

Bank of Portugal - Research Department ( email )

Av. Almirante Reis 71, 6th
Lisbon 1150-012
+351 21 313 0000 (Phone)
+351 21 814 3841 (Fax)

New University of Lisbon

Lisbon, 1099-085

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

Pedro S. Raposo

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE

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