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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. Lumsdaine, Robin L. & Mitchell, Olivia S., 1999. "New developments in the economic analysis of retirement," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 49, pages 3261-3307 Elsevier.
  2. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2007. "The Excess Burden Of Government Indecision," Boston University - Department of Economics - Working Papers Series WP2007-004, Boston University - Department of Economics.
  3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
  4. Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, vol. 80(5), pages 1217-30, December.
  5. 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.
  6. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. 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.
  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. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 353-60, July.
  10. 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.
  11. 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.
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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 Memoranda 055, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.

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