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Longevity Risk and Taxation of Public Pensions

Author

Listed:
  • 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

    as
    1. Jukka Lassila & Tarmo Valkonen, 2007. "The Finnish Pension Reform of 2005," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 32(1), pages 75-94, January.
    2. Chen, Damiaan H. J. & Beetsma, Roel M. W. J. & Ponds, Eduard H. M. & Romp, Ward E., 2016. "Intergenerational risk-sharing through funded pensions and public debt," Journal of Pension Economics and Finance, Cambridge University Press, vol. 15(2), pages 127-159, April.
    3. 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.
    4. Staubli, Stefan & Zweimüller, Josef, 2013. "Does raising the early retirement age increase employment of older workers?," Journal of Public Economics, Elsevier, vol. 108(C), pages 17-32.
    5. Alho, Juha A., 2002. "The Population of Finland in 2050 and Beyond," Discussion Papers 826, The Research Institute of the Finnish Economy.
    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.
    7. Alho, Juha M., 1990. "Stochastic methods in population forecasting," International Journal of Forecasting, Elsevier, vol. 6(4), pages 521-530, December.
    8. Fehr, Hans & Kallweit, Manuel & Kindermann, Fabian, 2012. "Pension reform with variable retirement age: a simulation analysis for Germany," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(3), pages 389-417, July.
    9. Lassila, Jukka & Määttänen, Niku & Valkonen, Tarmo, . "Linking retirement age to life expectancy – what happens to working lives and income distribution?," ETLA B, The Research Institute of the Finnish Economy, number 260, June.
    Full references (including those not matched with items on IDEAS)

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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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