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Fiscal prefunding in response to demographic uncertainty

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  • Alex Armstrong
  • Nick Draper

    ()

  • André Nibbelink

    ()

  • Ed Westerhout

    ()

Abstract

Uncertainty in demographic developments lowers expected future welfare levels. Increasing current tax rates and decreasing expected future tax rates may compensate part of the welfare loss that is due to demographic uncertainty. In doing so, the government effectively pursues a precautionary fiscal policy analogous to the precautionary life-cycle saving behaviour that households may exhibit in the presence of income uncertainty.

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Bibliographic Info

Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 85.

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Date of creation: Jul 2007
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Handle: RePEc:cpb:discus:85

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  1. Laurence J. Kotlikoff & Francisco J. Gomes & Luis M. Viceira, 2010. "The Excess Burden of Government Indecision," Boston University - Department of Economics - Working Papers Series WP2010-014, Boston University - Department of Economics.
  2. Robin L. Lumsdaine & Olivia S. Mitchell, . "New Developments in the Economic Analysis of Retirement," Pension Research Council Working Papers 98-8, Wharton School Pension Research Council, University of Pennsylvania.
  3. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  4. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 353-60, July.
  5. Kingston, Geoffrey, 1991. "Should Marginal Tax Rates Be Equalized Through Time?," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 911-24, August.
  6. Casper van Ewijk & Nick Draper & Harry ter Rele & Ed Westerhout, 2006. "Ageing and the sustainability of Dutch public finances," CPB Special Publication 61, CPB Netherlands Bureau for Economic Policy Analysis.
  7. Jan Bonenkamp & Martijn van de Ven, 2006. "A small stochastic model of a pension fund with endogenous saving," CPB Memorandum 168, CPB Netherlands Bureau for Economic Policy Analysis.
  8. Nick Draper & Alex Armstrong, 2007. "GAMMA; a simulation model for ageing, pensions and public finances," CPB Document 147, CPB Netherlands Bureau for Economic Policy Analysis.
  9. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  10. Alex Armstrong & Nick Draper & Ed Westerhout, 2008. "The impact of demographic uncertainty on public finances in the Netherlands," CPB Discussion Paper 104, CPB Netherlands Bureau for Economic Policy Analysis.
  11. Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, vol. 80(5), pages 1217-30, December.
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Cited by:
  1. Du Cai Cai & Muysken Joan & Sleijpen Olaf, 2010. "Economy wide risk diversification in a three-pillar pension system," Research Memorandum 055, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. Ball, Christopher & Creedy, John, 2013. "Tax Policy with Uncertain Future Costs: Some Simple Models," Working Paper Series 2839, Victoria University of Wellington, Chair in Public Finance.

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