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Private Retirement Savings in Germany: The Structure of Tax Incentives and Annuitization

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  • Hans Fehr
  • Christian Habermann

Abstract

The present paper studies the growth, welfare and efficiency consequences of the recent introduction of tax-favored retirement accounts in Germany in a general equilibrium overlapping generations model with idiosyncratic lifespan and labor income uncertainty. We focus on the implicit differential taxation of specific savings motives, the mandatory annuitization of benefits and the impact of special provisions for low-income households. The simulations indicate that the reform improves overall economic efficiency by about 0.6 percent of aggregate resources, but welfare decreases significantly for future generations. Finally, we show that special provisions could be very effective in raising the participation of low-income households despite their low budgetary cost.

Suggested Citation

  • Hans Fehr & Christian Habermann, 2008. "Private Retirement Savings in Germany: The Structure of Tax Incentives and Annuitization," CESifo Working Paper Series 2238, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2238
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    References listed on IDEAS

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    1. Fehr, Hans & Habermann, Christian, 2008. "Welfare effects of life annuities: Some clarifications," Economics Letters, Elsevier, vol. 99(1), pages 177-180, April.
    2. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-286, April.
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    6. 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, vol. 64(2), pages 171-198, June.
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    Cited by:

    1. Hans Fehr & Christian Habermann, 2010. "Private retirement savings and mandatory annuitization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(6), pages 640-661, December.
    2. Hans Fehr & Fabian Kindermann, 2010. "Pension Funding and Individual Accounts in Economies with Life-cyclers and Myopes," CESifo Economic Studies, CESifo, vol. 56(3), pages 404-443, September.
    3. Hans Fehr, 2009. "Computable Stochastic Equilibrium Models and Their Use in Pension- and Ageing Research," De Economist, Springer, vol. 157(4), pages 359-416, December.

    More about this item

    Keywords

    individual retirement accounts; annuities; stochastic general equilibrium;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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