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Progressive Tax Changes to Private Pensions in a Life-Cycle Framework

Author

Listed:
  • George Kudrna

    () (ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

  • Alan Woodland

    () (School of Economics and ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

Abstract

Tax concessions are a common feature of private pension pillars around the world. Most countries exempt pension fund earnings from any taxation but tax either benefits (EET regime) or contributions (TEE regime) progressively as regular private income. By contrast, Australia's superannuation taxation features concessional flat tax rates on contributions and fund earnings, with benefits being generally tax free. Concerned with the vertical equity of the current superannuation tax concessions, this paper provides a quantitative analysis of hypothetical replacements of the existing superannuation tax treatment with the EET and TEE regimes commonly found in other countries. Using a general equilibrium OLG model calibrated for Australia, we find that these hypothetical tax reforms to superannuation improve the vertical equity in the short, medium and long run, as indicated by larger relative welfare gains and income improvements experienced by lower income households.

Suggested Citation

  • George Kudrna & Alan Woodland, 2012. "Progressive Tax Changes to Private Pensions in a Life-Cycle Framework," Working Papers 201209, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
  • Handle: RePEc:asb:wpaper:201209
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    File URL: http://cepar.edu.au/media/78196/progressive_tax_changes_to_private_pensions.pdf
    File Function: First version, 2012
    Download Restriction: no

    References listed on IDEAS

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    4. Suzanne Doyle & Geoffrey Kingston & John Piggott, 1999. "Taxing Super," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 32(3), pages 207-218.
    5. George Kudrna & Alan D. Woodland, 2011. "Implications of the 2009 Age Pension Reform in Australia: A Dynamic General Equilibrium Analysis," The Economic Record, The Economic Society of Australia, vol. 87(277), pages 183-201, June.
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    Citations

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    Cited by:

    1. Monique Ebell & Angus Armstrong & Philip Davis, 2015. "An economic analysis of the existing taxation of pensions (EET) versus an alternative regime (TEE)," National Institute of Economic and Social Research (NIESR) Discussion Papers 455, National Institute of Economic and Social Research.
    2. Jukka Lassila & Tarmo Valkonen, 2015. "Longevity Risk and Taxation of Public Pensions," CESifo Working Paper Series 5640, CESifo Group Munich.
    3. Angus Armstrong & Philip Davis & Monique Ebell, 2015. "An Economic Analysis of Pension Tax Proposals," Discussion Papers 1533, Centre for Macroeconomics (CFM).

    More about this item

    Keywords

    Compulsory saving; pension and tax reforms; dynamic OLG model;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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