Page 19 - IDEA Study 7 2015 Working Beyond Pensionable Age

Graph 8: Individual working income and old age pension income in thousands of CZK, conditional on age, gender and education Source: Survey on income and living conditions 2010 for the Czech Republic In order to quantify institutional incentives to work we use the concept of a participation tax rate. The evolution of participation tax rate with age helps us to investigate, whether pensioners' higher temptation to work caused by guaranteed unconditional income (old age pension) is offset by higher institutional incentives to work (tax credits or a bonus pension benefit conditional on working etc). Participation tax rates have several specifications, depending on which instruments and policies are considered. First, we quantify the gross participation tax rate, which takes into account only the difference in direct taxes an individual pays when working or not working. Second, we evaluate the net participation tax rate, which considers the difference in direct tax paid and social benefits sacrificed if an individual is working or not working. Last, we calculate the full participation tax rate, which covers the difference caused by employment in terms of direct tax paid, social benefits sacrificed and future pension benefits expected. In general, a higher participation tax rate indicates a lower institutional incentive to work. For example, an increase in the income tax rate raises the difference in tax burden between the situation when individual is and is not working. It increases the value of the participation tax rate and decreases the individual's incentives to work because the net income from work is lower. A similar argumentation holds if, for example, a bonus for working during retirement is reduced, or unemployment benefits are increased. If 17