Pensioners Without Borders

This paper examines the threat of tax competition and international migration in aging economies, where retirees represent a growing share of the tax base. In 2013, Portugal introduced a full tax exemption on foreign-source pensions for relocating retirees. Contrary to the traditional view that seniors “age in place,” flows of foreign EU pensioners to Portugal rose by a factor of 30 after the reform, and stocks by more than 3, with effects concentrated among wealthy, educated pensioners from high-tax countries. The implied migration elasticity of the foreign-pensioner stock is large (2–3) and rises over time. Retirement migration persists after temporary incentives expire, as delayed origin-country retaliation (source-based taxation) only partially offsets outflows. Peer effects and spatial clustering evidence social multipliers and generate housing and healthcare congestion in host regions. In our calibrated optimal tax model, large migration elasticities justify preferential rates on foreign pensions, but regressive windfall gains for domestic homeowners and the geographic concentration of congestion externalities make full exemptions unlikely to be optimal.