Page 26 - IDEA Study 7 2015 Working Beyond Pensionable Age

Graph 12: Average full participation tax rate including impact of labour decisions on future benefits, conditional on age and gender Source: SILC 2012 for the Czech Republic, TAXBEN, own computations Graph 17 (in the appendix) shows the specification of the full participation tax rate if working old age pensioners are not eligible for taxpayer tax credit, as occurred in 2013. In this situation, pensioners were significantly more discouraged from work by institutional incentives than prime age individuals. It increased their temptation to leave labour market driven by eligibility of unconditional income. The difference between participation tax rate in graph 12 and 16 is caused by eligibility for taxpayer tax credit. In this section we showed that pensioners have guaranteed unconditional income (old age pension) and this unconditional income is comparable with their working income for some groups of pensioners. It causes that individuals' temptation to leave labour market increases, when they reach retirement age. Institutional incentives to work, quantified by participation tax rates, should react on the change in temptation to leave labour market. Pensioners should face higher institutional incentives to work (lower participation tax rates), because they are tempted to leave labour market more. However, the presented specifications of participation tax rates show that old age pensioners are not more incentivized to work than prime age individuals. The only exception to this result was given by the specifications of participation tax rates that took into account unemployment benefits. However, we argue that these specifications most probably do not reflect reality. Institutional incentives for those eligible for early pensions to work are similar to the incentives for old age pensioners, if we rely on the gross or full participation tax rates. They are significantly lower if we measure incentive to work based on the net participation tax rate. However, we believe that net participation tax rate is not a good measure of incentive to work for individuals eligible for early retirement, because they are aware of 24