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Revenue Effects of Tax Facilities for Pension Savings

  • Koen Caminada

    ()

  • Kees Goudswaard

    ()

Many countries have tax facilities for pension savings. These facilities are often associated with the application of the cash-flow treatment of pensions: pension contributions are tax-exempt, capital income of pension funds is tax-exempt, and pension benefits are taxed, but usually at a relatively low rate. This paper investigates the revenue effects of a cash-flow tax regime for pension savings by full present-value calculations. A comprehensive income tax system is used as a benchmark. We present an empirical analysis for the Netherlands as a typical example of a country with funded pensions. Our calculations show that current taxation of pensions implies a major tax revenue loss. For the year 2003, we estimate a fiscal pension subsidy of 1.4% to 1.5% of Gross Domestic Product (GDP). Copyright International Atlantic Economic Society 2008

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File URL: http://hdl.handle.net/10.1007/s11293-008-9114-1
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Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

Volume (Year): 36 (2008)
Issue (Month): 2 (June)
Pages: 233-246

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Handle: RePEc:kap:atlecj:v:36:y:2008:i:2:p:233-246
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  1. 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.
  2. Philip Booth & Deborah Cooper, 2002. "The tax treatment of UK defined contribution pension schemes," Fiscal Studies, Institute for Fiscal Studies, vol. 23(1), pages 77-104, March.
  3. Pablo AntolĂ­n & Alain de Serres & Christine de la Maisonneuve, 2004. "Long-Term Budgetary Implications of Tax-Favoured Retirement Plans," OECD Economics Department Working Papers 393, OECD Publishing.
  4. Lans Bovenberg, 2002. "Financing Retirement in the European Union," CESifo Working Paper Series 643, CESifo Group Munich.
  5. Sinn, Hans-Werner, 2005. "Europe's Demographic Deficit," Munich Reprints in Economics 934, University of Munich, Department of Economics.
  6. Koen Caminada & Kees Goudswaard, 1996. "Progression and revenue effects of income tax reform," International Tax and Public Finance, Springer, vol. 3(1), pages 57-66, January.
  7. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, June.
  8. David A. Wise, 2005. "Facing the age wave and economic policy: fixing public pension systems with healthcare in the wings," Fiscal Studies, Institute for Fiscal Studies, vol. 26(1), pages 5-34, April.
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