Portugal's Bold Experiment to Change its Demographics

A Story About Taxes

Portugal tripled its foreign retiree population in just 5 years. It managed to change its population through a strategic tax policy, which is a lesson for any government looking to implement a new tax policy.

𝗧𝗵𝗲 𝗣𝗼𝗹𝗶𝗰𝘆

In 2013, Portugal introduced a game-changing initiative: a 10-year tax exemption for foreign retirees' pension income. The requirements were simple:
* Relocate to Portugal
* Come from a country with a Portuguese tax treaty

𝗧𝗵𝗲 𝗥𝗲𝘀𝘂𝗹𝘁𝘀?

Foreign retiree migration soared 200% by 2017, attracting wealthy, educated pensioners and bringing significant spending power to the local economy.

Portugal’s growth was remarkable compared to neighboring Spain, which maintained stable retiree numbers.

𝗧𝗵𝗲 𝗣𝘂𝘀𝗵𝗯𝗮𝗰𝗸

But here's where it gets interesting: The strategy faced unexpected pushback. Finland (2018) and Sweden (2022) terminated their tax treaties with Portugal in protest, showcasing a crucial lesson in international tax policy.

𝗞𝗲𝘆 𝗧𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀 𝗳𝗼𝗿 𝗧𝗮𝘅 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝘀𝘁𝘀:

1. Tax incentives powerfully shape human behavior - people will relocate for significant tax savings
2. Tax policies create ripple effects - other jurisdictions will respond to protect their tax base

What other examples of government policy come to mind?

Read more in the working paper https://www.nber.org/papers/w32890