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Marginal Tax Rates and Tax-Favoured Pension Savings of the Self-Employed - Evidence from Sweden

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  • Håkan Selin

Abstract

In recent years, the study of how individuals respond to policies that aim at promoting pension savings has emerged as a vital area of economic research. This paper adds to this literature by estimating the tax price elasticity of contributions to tax-favoured pension savings accounts on a population of self-employed individuals. I exploit a unique total data base over the Swedish population that covers the years 1999 to 2005. Using instrumental variables, I obtain a tax price elasticity estimate of –0.51 and an income elasticity estimate of 0.13, whereas OLS produces estimates that conflict with consumer theory.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3059.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3059

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Keywords: income taxation; fringe benefits; individual pension savings; self-employment;

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References

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  1. Steven F. Venti & David A. Wise, 1985. "The Determinants of IRA Contributions and the Effect of Limit Changes," NBER Working Papers 1731, National Bureau of Economic Research, Inc.
  2. Kevin Milligan, 2001. "Tax-Preferred Savings Accounts and Marginal Tax Rates: Evidence on RRSP Participation," Social and Economic Dimensions of an Aging Population Research Papers, McMaster University 52, McMaster University.
  3. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers, Institute for Fiscal Studies W98/18, Institute for Fiscal Studies.
  4. B. Douglas Bernheim, 1999. "Taxation and Saving," NBER Working Papers 7061, National Bureau of Economic Research, Inc.
  5. Power, Laura & Rider, Mark, 2002. "The effect of tax-based savings incentives on the self-employed," Journal of Public Economics, Elsevier, Elsevier, vol. 85(1), pages 33-52, July.
  6. Baltagi, Badi H. & Li, Qi, 1992. "A Note on the Estimation of Simultaneous Equations with Error Components," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 8(01), pages 113-119, March.
  7. Michael R. Veall, 1999. "Did Tax Flattening Affect RRSP Contributions?," Quantitative Studies in Economics and Population Research Reports, McMaster University 342, McMaster University.
  8. Whitehouse, Edward & Queisser, Monika, 2007. "Pensions at a glance: public policies across OECD countries," MPRA Paper 16349, University Library of Munich, Germany.
  9. Anastasia Semykina & Jeffrey M. Woodridge, 2010. "Estimating Panel Data Models in the Presence of Endogeneity and Selection," Working Papers, Department of Economics, Florida State University wp2010_10_01, Department of Economics, Florida State University.
  10. Håkan Selin, 2012. "Marginal Tax Rates and Tax‐Favoured Pension Savings of the Self‐Employed: Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 114(1), pages 79-100, 03.
  11. Gary V. Engelhardt & Anil Kumar, 2007. "Employer matching and 401(k) saving: Evidence from the health and retirement study," NBER Chapters, National Bureau of Economic Research, Inc, in: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 1920-1943 National Bureau of Economic Research, Inc.
  12. Jonathan Gruber & James M. Poterba, 1996. "Tax Subsidies to Employer-Provided Health Insurance," NBER Chapters, National Bureau of Economic Research, Inc, in: Empirical Foundations of Household Taxation, pages 135-168 National Bureau of Economic Research, Inc.
  13. Gary V. Engelhardt & Anil Kumar, 2008. "The elasticity of intertemporal substitution: new evidence from 401(k) participation," Working Papers, Federal Reserve Bank of Dallas 0812, Federal Reserve Bank of Dallas.
  14. Zvi Bodie & John B. Shoven & David A. Wise, 1988. "Pensions in the U.S. Economy," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number bodi88-1.
  15. Feldstein, Martin S & Taylor, Amy, 1976. "The Income Tax and Charitable Contributions," Econometrica, Econometric Society, Econometric Society, vol. 44(6), pages 1201-22, November.
  16. Agell, Jonas & Edin, Per-Anders, 1990. " Marginal Taxes and the Asset Portfolios of Swedish Households," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 92(1), pages 47-64.
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Cited by:
  1. Bastani, Spencer & Selin, Håkan, 2014. "Bunching and non-bunching at kink points of the Swedish tax schedule," Journal of Public Economics, Elsevier, Elsevier, vol. 109(C), pages 36-49.
  2. Selin, Håkan, 2009. "Marginal tax rates and tax-favoured pension savings of the self-employed Evidence from Sweden," Working Paper Series, Uppsala University, Department of Economics 2009:6, Uppsala University, Department of Economics.

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