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Distributional Effects of Subsidizing Retirement Savings Accounts: Evidence from Germany

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  • Giacomo Corneo
  • Johannes König
  • Carsten Schröder

Abstract

We empirically investigate the distributional consequences of the Riester scheme, the main private pension subsidization program in Germany. We find that 38 % of the aggregate subsidy accrues to the top two deciles of the income distribution, but only 7.3 % to the bottom two. Nonetheless the Riester scheme is almost distributionally neutral in terms of standard inequality measures. Two effects offset each other: a progressive one stemming from the subsidy schedule and a regressive one due to voluntary participation. Participation is associated not only with high income but also with high household wealth.

Suggested Citation

  • Giacomo Corneo & Johannes König & Carsten Schröder, 2018. "Distributional Effects of Subsidizing Retirement Savings Accounts: Evidence from Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 74(4), pages 415-445, December.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201812)74:4_415:deosrs_2.0.tx_2-t
    DOI: 10.1628/fa-2018-0017
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    References listed on IDEAS

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    1. Raj Chetty & John N. Friedman & Soren Leth-Petersen & Torben Heien Nielsen & Tore Olsen, 2013. "Subsidies vs. Nudges: Which Policies Increase Saving the Most?," Issues in Brief ib2013-3, Center for Retirement Research.
    2. Viktor Steiner & Katharina Wrohlich & Peter Haan & Johannes Geyer, 2008. "Documentation of the Tax-Benefit Microsimulation Model STSM: Version 2008," Data Documentation 31, DIW Berlin, German Institute for Economic Research.
    3. Christian Pfarr & Udo Schneider, 2011. "Anreizeffekte und Angebotsinduzierung im Rahmen der Riester‐Rente: Eine empirische Analyse geschlechts‐ und sozialisationsbedingter Unterschiede," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(1), pages 27-46, February.
    4. Joulfaian, David & Richardson, David, 2001. "Who Takes Advantage of Tax-Deferred Savings Programs? Evidence From Federal Income Tax Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(3), pages 669-688, September.
    5. Coppola, Michela & Reil-Held, Anette, 2009. "Dynamik der Riester-Rente: Ergebnisse aus SAVE 2003 bis 2008," MEA discussion paper series 09195, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
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    Citations

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    Cited by:

    1. Johannes König & Carsten Schröder, 2018. "Inequality-minimization with a given public budget," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 16(4), pages 607-629, December.
    2. repec:eee:labeco:v:51:y:2018:i:c:p:25-37 is not listed on IDEAS
    3. Dolls, Mathias & Doerrenberg, Philipp & Peichl, Andreas & Stichnoth, Holger, 2018. "Do retirement savings increase in response to information about retirement and expected pensions?," Journal of Public Economics, Elsevier, vol. 158(C), pages 168-179.
    4. Timm Bönke & Markus Grabka & Carsten Schröder & Edward N. Wolff, 2017. "A Head-to-Head Comparison of Augmented Wealth in Germany and the United States," NBER Working Papers 23244, National Bureau of Economic Research, Inc.
    5. Dolls, Mathias & Doerrenberg, Philipp & Peichl, Andreas & Stichnoth, Holger, 2018. "Do retirement savings increase in response to information about retirement and expected pensions?," Journal of Public Economics, Elsevier, vol. 158(C), pages 168-179.
    6. repec:eee:pubeco:v:171:y:2019:i:c:p:105-116 is not listed on IDEAS
    7. Barrios, Salvador & Coda Moscarola, Flavia & Figari, Francesco & Gandullia, Luca, 2018. "Size and distributional pattern of pension-related tax expenditures in European countries," EUROMOD Working Papers EM15/18, EUROMOD at the Institute for Social and Economic Research.
    8. Mathias Dolls & Philipp Doerrenberg & Andreas Peichl & Holger Stichnoth, 2016. "Do Savings Increase in Response to Salient Information about Retirement and Expected Pensions?," NBER Working Papers 22684, National Bureau of Economic Research, Inc.
    9. Bönke, Timm & Kemptner, Daniel & Lüthen, Holger, 2018. "Effectiveness of early retirement disincentives: Individual welfare, distributional and fiscal implications," Labour Economics, Elsevier, vol. 51(C), pages 25-37.

    More about this item

    Keywords

    saving subsidies; retirement plans; income distribution;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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