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Fiscal prefunding in response to demographic uncertainty

Author

Listed:
  • Alex Armstrong

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Nick Draper

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • André Nibbelink

    () (CPB Netherlands Bureau for Economic Policy Analysis)

  • Ed Westerhout

    () (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

Uncertainty in demographic developments lowers expected future welfare levels. Increasing current tax rates and decreasing expected future tax rates may compensate part of the welfare loss that is due to demographic uncertainty. In doing so, the government effectively pursues a precautionary fiscal policy analogous to the precautionary life-cycle saving behaviour that households may exhibit in the presence of income uncertainty.

Suggested Citation

  • Alex Armstrong & Nick Draper & André Nibbelink & Ed Westerhout, 2007. "Fiscal prefunding in response to demographic uncertainty," CPB Discussion Paper 85, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:85
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    References listed on IDEAS

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    1. Geoffrey Kingston, 1991. "Should Marginal Tax Rates be Equalized Through Time?," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 911-924.
    2. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012. "The Excess Burden of Government Indecision," NBER Chapters,in: Tax Policy and the Economy, Volume 26, pages 125-163 National Bureau of Economic Research, Inc.
    3. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    4. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    5. Nick Draper & Alex Armstrong, 2007. "GAMMA; a simulation model for ageing, pensions and public finances," CPB Document 147, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Kingston, G., 1989. "Should Marginal Tax Rates Be Equalized Through Time?," Papers 89-8, New South Wales - School of Economics.
    7. Lumsdaine, Robin L. & Mitchell, Olivia S., 1999. "New developments in the economic analysis of retirement," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 49, pages 3261-3307 Elsevier.
    8. Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, vol. 80(5), pages 1217-1230, December.
    9. Casper van Ewijk & Nick Draper & Harry ter Rele & Ed Westerhout, 2006. "Ageing and the sustainability of Dutch public finances," CPB Special Publication 61, CPB Netherlands Bureau for Economic Policy Analysis.
    10. Alex Armstrong & Nick Draper & Ed Westerhout, 2008. "The impact of demographic uncertainty on public finances in the Netherlands," CPB Discussion Paper 104, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Jan Bonenkamp & Martijn van de Ven, 2006. "A small stochastic model of a pension fund with endogenous saving," CPB Memorandum 168, CPB Netherlands Bureau for Economic Policy Analysis.
    12. A. Sandmo, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Oxford University Press, vol. 37(3), pages 353-360.
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    Citations

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    Cited by:

    1. Christopher Ball & John Creedy, 2014. "Tax policy with uncertain future costs: Some simple models," New Zealand Economic Papers, Taylor & Francis Journals, vol. 48(2), pages 240-253, August.
    2. Ball, Christopher & Creedy, John & Scobie, Grant, 2015. "Long-run Fiscal Projections under Uncertainty: The Case of New Zealand," Working Paper Series 4756, Victoria University of Wellington, Chair in Public Finance.
    3. Du Cai Cai & Muysken Joan & Sleijpen Olaf, 2010. "Economy wide risk diversification in a three-pillar pension system," Research Memorandum 055, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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