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Pension Reforms and Taxation in Estonia


  • Ringa Raudla

    () (Department of Public Administration, University of Tartu)

  • Karsten Staehr

    () (EuroFaculty, University of Tartu)


Estonia completed its pension system reforms in 2002. The new 3-pillar system features a first pillar of universal state pension, a second pillar of funded supplementary pension and a third pillar of independent pension savings. The paper reviews the new pension system and the early experience. It also brings up a number of unsettled issues, in part stemming from the interplay between the pension and taxation systems. Albeit the new pension scheme has been successfully implemented, it is excessively complex and non-transparent. Certain groups could experience inadequate pension coverage. The public finances are in the short term adversely affected by lower payroll and income tax revenue. Any longer-term effects on economic performance are very uncertain and likely to stem primarily from changes in the labour supply.

Suggested Citation

  • Ringa Raudla & Karsten Staehr, 2003. "Pension Reforms and Taxation in Estonia," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 4(1), pages 64-92, December.
  • Handle: RePEc:bic:journl:v:4:y:2003:i:1:p:64-92

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    References listed on IDEAS

    1. Bovenberg, A. L. & van der Ploeg, F., 1994. "Environmental policy, public finance and the labour market in a second-best world," Journal of Public Economics, Elsevier, vol. 55(3), pages 349-390, November.
    2. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
    3. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost?," NBER Chapters,in: Behavioral and Distributional Effects of Environmental Policy, pages 45-90 National Bureau of Economic Research, Inc.
    4. Babiker, Mustafa H. & Metcalf, Gilbert E. & Reilly, John, 2003. "Tax distortions and global climate policy," Journal of Environmental Economics and Management, Elsevier, vol. 46(2), pages 269-287, September.
    5. Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-253, March.
    6. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
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    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Karsten Staehr, 2008. "Estimates of employment and welfare effects of personal labour income taxation in a flat-tax country : The case of Estonia," Bank of Estonia Working Papers 2008-03, Bank of Estonia, revised 30 Oct 2008.
    2. Dmitry Kulikov & Karsten Staehr, "undated". "Microeconometric analysis of household saving in Estonia: income, wealth, financial exposure," Bank of Estonia Working Papers wp2007-8, Bank of Estonia, revised 03 Feb 2015.
    3. repec:pal:compes:v:59:y:2017:i:4:d:10.1057_s41294-017-0037-1 is not listed on IDEAS
    4. Igor Fedotenkov, 2014. "Pension Reform, Factor Mobility and Trade with Country-Specific Goods," De Economist, Springer, vol. 162(3), pages 247-262, September.
    5. Tiiu Paas & Marit Hinnosaar & Jaan Masso & Orsolya Szirko, 2004. "Social Protection Systems In The Baltic States," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 26, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    6. Igor Fedotenkov & Lex Meijdam, 2014. "Pension reform with migration and mobile capital: is a Pareto improvement possible?," International Economics and Economic Policy, Springer, vol. 11(3), pages 431-450, September.
    7. Fedotenkov, I., 2012. "Pensions and ageing in a globalizing world. International spillover effects via trade and factor mobility," Other publications TiSEM 8830bc21-4138-4479-8459-a, Tilburg University, School of Economics and Management.

    More about this item


    Pension reform; payroll taxes; savings; incentive effects;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance


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