The Effect of Pension Tax Reductions on Labor Supply

I quantify the effects of Russia’s 1964 and 1970 pension law amendments on old-age labor supply. The amendments reduced the tax rate of employed pensioners to 50, 25 and 0 percent. I construct a novel data-set by collecting archival data on employment from the RGAE archives on Russia. The amendments provided differential reductions in pension taxes by region, and were only applicable to one group of pensioners, which allows me to exploit a differences-indifferences framework to quantify their effects in three ways. First, the differential reduction in taxes by region in the 1964 amendment allows me to estimate the effect of changing the tax rate from 50 to 25 percent. Second, the differential reduction in taxes by region in the 1970 amendment allows me to estimate the effect of changing the tax rate from 25 to 0 percent. Third, the applicability of both amendments only to old-age pensioners allows me to estimate the effect of changing the tax rate from 84 to 25 percent and from 84 to 50 percent.