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Size and distributional pattern of pension-related tax expenditures in European countries

Author

Listed:
  • Salvador Barrios

    (European Commission - JRC)

  • Flavia Coda Moscarola

    (Centre for Research on Pensions and Welfare Policies (CeRP) Collegio Carlo Alberto, Università degli Studi di Torino)

  • Francesco Figari

    (Università degli Studi dell'Insubria, ISER University of Essex and CeRP)

  • Luca Gandullia

    (Dipartimento di Scienze Politiche (DISPO), Università degli Studi di Genova)

Abstract

Policy discussions on pension systems generally focus on their sustainability and design, including retirement age, income reference and contributory period while relative little attention is devoted to the tax treatment of pension contributions and pension benefits. However, tax expenditures – defined as deviations from an agreed benchmark tax system – are widely used in the EU Member States and little is known on their redistributive or fiscal impact. This paper quantifies the fiscal and distributional impact of tax expenditures related to public and private contributory pension schemes, affecting both contributions and pension benefits, in 28 European countries using EUROMOD, the EU-wide microsimulation model. We find that pension-related tax expenditures can have a sizeable revenue impact and strong effects on inequality and poverty. Moreover tax expenditures tend to be progressive at two levels. First, among elderly, favoring lower income pensioners, mainly through a favorable treatment of pension incomes. Second, among working-age individuals, through partial or no deduction of pension contributions, draining resources from those at the top of the income distribution.

Suggested Citation

  • Salvador Barrios & Flavia Coda Moscarola & Francesco Figari & Luca Gandullia, 2018. "Size and distributional pattern of pension-related tax expenditures in European countries," JRC Working Papers on Taxation & Structural Reforms 2018-06, Joint Research Centre (Seville site).
  • Handle: RePEc:ipt:taxref:201806
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    Cited by:

    1. IVASKAITE-TAMOSIUNE Viginta & THIEMANN Andreas, 2021. "The budgetary and redistributive impact of pension taxation in the EU: A microsimulation analysis," JRC Working Papers on Taxation & Structural Reforms 2021-08, Joint Research Centre (Seville site).
    2. Christl, Michael & De Poli, Silvia & Ivaškaitė-Tamošiūnė, Viginta, 2021. "Does it pay to say "I do"? Marriage bonuses and penalties across the EU," GLO Discussion Paper Series 906, Global Labor Organization (GLO).
    3. Bernd Genser & Robert Holzmann, 2020. "Taxing German Old-age Pensions Fairly and Effciently," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(04), pages 36-40, January.
    4. Diego d'Andria & Jason DeBacker & Richard Evans & Jonathan Pycroft & Magdalena Zachlod-Jelec, 2019. "Micro-founded tax policy effects in a heterogenenous-agent macro-model," JRC Working Papers on Taxation & Structural Reforms 2019-01, Joint Research Centre (Seville site).
    5. Bernd Genser & Robert Holzmann, 2020. "Are Dutch Old-Age Pensions Taxed Fairly and Efficiently?," CESifo Working Paper Series 8444, CESifo.

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    More about this item

    Keywords

    EUROMOD; pensions; tax expenditures; inequality; taxation; fairness; life cycle;
    All these keywords.

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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