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

Author

Listed:
  • Salvador Barrios

    (Joint Research Centre)

  • Flavia Coda Moscarola

    (CeRP Collegio Carlo Alberto)

  • Francesco Figari

    (CeRP Collegio Carlo Alberto
    University of Insubria
    University of Essex
    Dondena University Bocconi)

  • Luca Gandullia

    (University of Genoa)

Abstract

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 all EU Member States using EUROMOD, the EU-wide microsimulation model. Adopting a benchmark system in which pension contributions are exempt and taxes apply when benefits are received (EET system), we find that pension-related tax expenditures can have a sizeable impact on revenue and strong effects on inequality and poverty. Tax expenditures tend to be progressive on two levels: first, among pensioners, by favoring those with lower incomes, mainly as a result of the preferential treatment given to pension incomes; and, second, among people of working age, through a partial or no deduction of pension contributions, draining resources from those at the top of the income distribution. Moreover, embracing a lifetime perspective, tax expenditures tend to redistribute resources in favor of women and low-educated individuals.

Suggested Citation

  • Salvador Barrios & Flavia Coda Moscarola & Francesco Figari & Luca Gandullia, 2020. "Size and distributional pattern of pension-related tax expenditures in European countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(5), pages 1287-1320, October.
    • Handle: RePEc:kap:itaxpf:v:27:y:2020:i:5:d:10.1007_s10797-019-09580-7
    DOI: 10.1007/s10797-019-09580-7
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    2. 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.
    3. 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.
    4. Cieślukowski Maciej, 2024. "Taxation of public pensions in European Union countries," Economics and Business Review, Sciendo, vol. 10(2), pages 60-91.
    5. 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.
    6. Bernd Genser & Robert Holzmann, 2020. "Are Dutch Old-Age Pensions Taxed Fairly and Efficiently?," CESifo Working Paper Series 8444, CESifo.
    7. Rafael Granell & Amadeo Fuenmayor & Teresa Savall, 2024. "Redistributive effects of tax-benefit policies in the EU. Simulation of reform proposals," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 71(4), pages 933-957, December.

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    More about this item

    Keywords

    Tax expenditures; EUROMOD; Simulations; Pensions;
    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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