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Are Dutch Old-Age Pensions Taxed Fairly and Efficiently?

Author

Listed:
  • Bernd Genser
  • Robert Holzmann

Abstract

The Dutch pension system is internationally top-ranked as a well-designed three-pillar system. Moreover, almost all forms of pension benefits are expenditure taxed in line with the European Commission’s recommendations. Consequently, the Dutch pension policy approach could be regarded as a welcome blueprint for pension policy reform, currently on the agenda of all EU member countries. This paper focuses on the taxation of Dutch pensions and identifies two classes of problems that challenge the suitability of deferred pension taxation. First, cash flow taxation of pensions erodes the tax equity objectives of a progressive income tax. Second, deferred pension taxation generates a double fairness dilemma in a world with free cross-border migration and double taxation treaties in accordance with the OECD Model Tax Convention. The paper argues that these problems, as well as other minor problems in Dutch pension taxation, could be solved by replacing the Netherlands’ current system of deferred income taxation of pensions with a frontloaded expenditure tax system.

Suggested Citation

  • Bernd Genser & Robert Holzmann, 2020. "Are Dutch Old-Age Pensions Taxed Fairly and Efficiently?," CESifo Working Paper Series 8444, CESifo.
  • Handle: RePEc:ces:ceswps:_8444
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp8444.pdf
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    References listed on IDEAS

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    1. Robert Holzmann & Richard Hinz, 2005. "Old Age Income Support in the 21st century: An International Perspective on Pension Systems and Reform," World Bank Publications - Books, The World Bank Group, number 7336, November.
    2. Bernd Genser & Robert Holzmann, 2016. "The Taxation of Internationally Portable Pensions: Fiscal Issues and Policy Options," CESifo Working Paper Series 5702, CESifo.
    3. Figari, Francesco & Barrios, Salvador & Coda Moscarola, Flavia & 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.
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    More about this item

    Keywords

    pension taxation; front-loaded expenditure taxation; progressivity erosion; international migration; OECD model tax convention;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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