Perception and Salience of Public Pension Contribution Incentives: Evidence from Voluntary Contributions

In this paper, I investigate the perceived valuation of the implicit contribution incentives provided by public pension systems. I take advantage of the unique setting offered by the public pension system in Spain, where self-employed workers can voluntarily determine the level of their Social Security contributions. Using quasi-experimental variations arising from three pension reforms, I find that (i) only 10.35% of self-employed individuals respond to the substantial contribution incentives offered by the Spanish public pension system; (ii) responses are more pronounced when contribution incentives are more salient; (iii) a significant proportion of self-employed individuals overcontribute in cases where contributions yield no pension return. My results suggest that taxpayers face challenges in valuing the implicit contribution incentives of earnings-related public pension systems. I conclude that more salient Social Security contribution incentives could potentially lead to substantial efficiency gains.