Labor supply and the pension system – Evidence from a Regression Kink Design

This paper uses a Regression Kink Design to estimate the labor supply effects of changes in the financial incentives in the pension system. In particular we analyze the effect of the introduction of pension deductions for early retirement on female labor supply behavior. This reform allows to exploit exogenous variation in benefits using kinks in the schedule of pension benefits depending on the birth cohort. For the empirical analysis we use high-quality administrative data from the German Federal Pension Insurance (VSKT) and find positive and significant effects of the reform on labor supply behavior.