Juan Rios, PUC-Rio

We study the welfare and fiscal effects of a major reform to the Brazilian Retirement Pension schedule and use these estimates to characterize how the schedule should be redesigned. The Brazilian pension schedule is determined by a “points’’ formula (age + years of contribution), and the 2015 reform introduced a threshold at which benefits rise discretely and the post-threshold schedule becomes flatter, corresponding to changes in the benefit level at the threshold ($b_L$) and in the slope of the post-threshold schedule ($b_S$). Using administrative data on the universe of early retirement claims matched to formal labor earnings, we find that the reform induced large behavioral responses: substantial bunching at the threshold reflects both postponement of claiming from below the threshold and anticipation from above it. We also quantify fiscal externalities by tracking payroll and income tax revenues for affected workers. The implied Marginal Value of Public Funds (MVPF) of the reform is about 0.21. We then use the welfare-weighted MVPF framework to evaluate marginal changes in the two policy parameters underlying the reform and to infer the optimal local budget-neutral reform to the schedule.