Closing the gender pension gap - labor supply and welfare effects of progressive pensions

Progressive pension supplements mechanically reduce the gender pension gap because women receive lower pensions on average. However, labor supply responses may offset these gains and create fiscal externalities. Using German administrative data, we analyze the distributional and welfare effects of a progressive pension supplement. We find no labor supply responses during working life, but small effects on women’s employment and earnings in retirement. The supplement reduces the gender income gap by about two percent, with sizable heterogeneity across pension levels. The marginal value of public funds is 0.83. Means-testing based on household income improves welfare even with low redistributive preferences.