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Voluntary pension savings: the effects of the Finnish tax reform on savers' behaviour

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  • Jarkko Harju

Abstract

Many countries tax voluntary pension savings using the so-called EET model, based on tax-deductible savings and taxable withdrawals. In Finland the tax reform of 2005 changed the tax rate schedule from progressive to proportional, while the basic structure of the EET model was retained. This paper is an empirical study of changes in savers? behaviour as a result of the reform using individual level data. The econometric estimations indicate that the reform altered pension saving behaviour by reducing the labour income and age effects on saving contributions in a statistically significant way. Also, the reform reduced the number of pension savers among high income-earners.

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Bibliographic Info

Paper provided by Government Institute for Economic Research Finland (VATT) in its series Working Papers with number 7.

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Date of creation: 17 Jun 2009
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Handle: RePEc:fer:wpaper:7

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Keywords: Voluntary pension savings; tax reform; tax incentives;

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  1. Orazio Attanasio & James Banks & Matthew Wakefield, 2004. "Effectiveness of tax incentives to boost (retirement) saving: theoretical motivation and empirical evidence," IFS Working Papers, Institute for Fiscal Studies W04/33, Institute for Fiscal Studies.
  2. Edward C. Norton & Hua Wang & Chunrong Ai, 2004. "Computing interaction effects and standard errors in logit and probit models," Stata Journal, StataCorp LP, StataCorp LP, vol. 4(2), pages 154-167, June.
  3. B. Douglas Bernheim, 1999. "Taxation and Saving," Working Papers, Stanford University, Department of Economics 99007, Stanford University, Department of Economics.
  4. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1998. "The Effect of Tax-Favored Retirement Accounts on Capital Accumulation," American Economic Review, American Economic Association, American Economic Association, vol. 88(4), pages 749-68, September.
  5. Richard Disney & Carl Emmerson & Matthew Wakefield, 2007. "Tax reform and retirement saving incentives: evidence from the introduction of stakeholder pensions in the UK," IFS Working Papers, Institute for Fiscal Studies W07/19, Institute for Fiscal Studies.
  6. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, Elsevier, vol. 80(1), pages 123-129, July.
  7. 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, Mohr Siebeck, Tübingen, vol. 64(2), pages 171-198, June.
  8. Eric M. Engen & William G. Gale & John Karl Scholz, 1994. "Do Saving Incentives Work?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 85-180.
  9. Benjamin, Daniel J., 2003. "Does 401(k) eligibility increase saving?: Evidence from propensity score subclassification," Journal of Public Economics, Elsevier, Elsevier, vol. 87(5-6), pages 1259-1290, May.
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Cited by:
  1. Ossi Korkeamäki & Tomi Kyyrä, 2012. "Institutional rules, labour demand and retirement through disability programme participation," Journal of Population Economics, Springer, Springer, vol. 25(2), pages 439-468, January.
  2. Ossi Korkeamäki, 2011. "The Finnish payroll tax cut experiment revisited," Working Papers, Government Institute for Economic Research Finland (VATT) 22, Government Institute for Economic Research Finland (VATT).
  3. Heléne Lundqvist, 2010. "Granting public or private consumption? Effects of grants on local public spending and income taxes," Working Papers, Government Institute for Economic Research Finland (VATT) 15, Government Institute for Economic Research Finland (VATT).

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