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Progressive Tax Changes to Private Pensions in a Life-Cycle Framework

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  • George Kudrna

    ()
    (ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

  • Alan Woodland

    ()
    (School of Economics and ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

Abstract

Tax concessions are a common feature of private pension pillars around the world. Most countries exempt pension fund earnings from any taxation but tax either benefits (EET regime) or contributions (TEE regime) progressively as regular private income. By contrast, Australia's superannuation taxation features concessional flat tax rates on contributions and fund earnings, with benefits being generally tax free. Concerned with the vertical equity of the current superannuation tax concessions, this paper provides a quantitative analysis of hypothetical replacements of the existing superannuation tax treatment with the EET and TEE regimes commonly found in other countries. Using a general equilibrium OLG model calibrated for Australia, we find that these hypothetical tax reforms to superannuation improve the vertical equity in the short, medium and long run, as indicated by larger relative welfare gains and income improvements experienced by lower income households.

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File URL: http://cepar.edu.au/media/78196/progressive_tax_changes_to_private_pensions.pdf
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Bibliographic Info

Paper provided by ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales in its series Working Papers with number 201209.

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Length: 32 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:asb:wpaper:201209

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Keywords: Compulsory saving; pension and tax reforms; dynamic OLG model;

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  1. Hans Fehr & Christian Habermann & Fabian Kindermann, 2008. "Tax-Favored Retirement Accounts: Are they Efficient in Increasing Savings and Growth?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(2), pages 171-198, June.
  2. Fehr, Hans, 1999. "Pension reform during the demographic transition," W.E.P. - Würzburg Economic Papers 8, University of Würzburg, Chair for Monetary Policy and International Economics.
  3. Margaret E. Atkinson & John Creedy & David M. Knox, 1999. "Some implications of changing the tax basis for pension funds," Fiscal Studies, Institute for Fiscal Studies, vol. 20(2), pages 189-203, June.
  4. Nishiyama, Shinichi, 2011. "The budgetary and welfare effects of tax-deferred retirement saving accounts," Journal of Public Economics, Elsevier, vol. 95(11), pages 1561-1578.
  5. Cho, Sang-Wook (Stanley) & Sane, Renuka, 2013. "Means-Tested Age Pensions And Homeownership: Is There A Link?," Macroeconomic Dynamics, Cambridge University Press, vol. 17(06), pages 1281-1310, September.
  6. Suzanne Doyle & Geoffrey Kingston & John Piggott, 1999. "Taxing Super," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 32(3), pages 207-218.
  7. Jocelyn Horne, 2002. "Taxation of Superannuation in Australia: An Assessment of Reform Proposals," Research Papers 0212, Macquarie University, Department of Economics.
  8. Kingston, Geoffrey & Piggott, John, 1993. "A Ricardian Equivalence Theorem on the taxation of pension funds," Economics Letters, Elsevier, vol. 42(4), pages 399-403.
  9. Kulish Mariano & Kent Christopher & Smith Kathryn, 2010. "Aging, Retirement, and Savings: A General Equilibrium Analysis," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-32, July.
  10. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
  11. Chung Tran & Alan Woodland, 2011. "Trade-Offs in Means Tested Pension Design," Working Papers 201110, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
  12. George Kudrna & Alan D. Woodland, 2011. "Implications of the 2009 Age Pension Reform in Australia: A Dynamic General Equilibrium Analysis," The Economic Record, The Economic Society of Australia, vol. 87(277), pages 183-201, 06.
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