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Longevity Risk and Taxation of Public Pensions

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  • Jukka Lassila
  • Tarmo Valkonen

Abstract

We study transitions from EET tax regime to TEE regime in a defined-benefit pension scheme with a numerical overlapping generations model, using stochastic mortality projections as inputs. In a traditional pension scheme with no automatic longevity rules, such as a link between life expectancy and pensions or retirement age, the tax regime shift can be used to improve public finances, when longevity increases. Diminished private saving and weaker labour supply incentives are among the downsides. Especially the latter makes the reform welfare-reducing, if the improvement in state finances is not used to relieve taxation of labour.

Suggested Citation

  • Jukka Lassila & Tarmo Valkonen, 2015. "Longevity Risk and Taxation of Public Pensions," CESifo Working Paper Series 5640, CESifo.
    • Handle: RePEc:ces:ceswps:_5640
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    References listed on IDEAS

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    6. 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.
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    More about this item

    Keywords

    taxation; pensions; longevity;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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