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Taxes and Pensions

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  • Peter A. Diamond

Abstract

Pension benefit rules depend on individual history far more than taxes do, and age plays a much larger role in pension determination than in tax determination. Apart from some simulation studies, theoretical studies of optimal tax design typically contain neither a mandatory pension system nor the behavioral dimensions that lie behind justifications commonly offered for mandatory pensions. Conversely, optimizing models of pension design typically do not include annual taxation of labor and capital incomes. After spelling out this contrast and reviewing (and rejecting) zero taxation of capital income based on the Atkinson-Stiglitz and Chamley-Judd results, this article raises the issue of tax-favored retirement savings, a topic where the two subjects come together.

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  • Peter A. Diamond, 2009. "Taxes and Pensions," CESifo Working Paper Series 2636, CESifo.
    • Handle: RePEc:ces:ceswps:_2636
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    3. Torben M. Andersen, 2015. "How Should Pensions be Taxed? Theoretical Considerations and the Scandinavian Experience," CESifo Working Paper Series 5660, CESifo.
    4. Torben M. Andersen, 2020. "Taxation of capital income in overlapping generations economies," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1245-1261, September.
    5. CREMER, Helmuth & PESTIEAU, Pierre, 2016. "Taxing Pensions," LIDAM Discussion Papers CORE 2016006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Findley, T. Scott & Caliendo, Frank N., 2014. "Interacting mechanisms of time inconsistency," Journal of Economic Psychology, Elsevier, vol. 41(C), pages 68-76.
    7. Bastani, Spencer & Waldenström, Daniel, 2018. "How Should Capital Be Taxed? Theory and Evidence from Sweden," IZA Discussion Papers 11475, Institute of Labor Economics (IZA).
    8. Bernd Genser, 2015. "Towards an International Tax Order for the Taxation of Retirement Income," Working Paper Series of the Department of Economics, University of Konstanz 2015-13, Department of Economics, University of Konstanz.
    9. repec:spo:wpecon:info:hdl:2441/45smbs6p8180bqfu6epmve62q2 is not listed on IDEAS
    10. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2016. "Public Pensions in a Multi-Period Mirrleesian Income Tax Model," CESifo Working Paper Series 6206, CESifo.
    11. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," CESifo Working Paper Series 2692, CESifo.
    12. José Luis Iparraguirre, 2020. "Economics and Ageing," Springer Books, Springer, number 978-3-030-29019-1, December.
    13. Adi Brender, 2009. "Distributive Effects of Israel's Pension System," Bank of Israel Working Papers 2009.10, Bank of Israel.
    14. Kerstin Roeder, 2014. "Optimal taxes and pensions with myopic agents," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(3), pages 597-618, March.
    15. Axel Börsch-Supan & Christopher Quinn, 2015. "Taxing Pensions and Retirement Benefits in Germany," CESifo Working Paper Series 5636, CESifo.
    16. Katarzyna Romaniuk, 2013. "Pension fund taxation and risk-taking: should we switch from the EET to the TEE regime?," Annals of Finance, Springer, vol. 9(4), pages 573-588, November.
    17. Philippe Choné & Guy Laroque, 2014. "Income tax and retirement schemes," Working Papers hal-01070554, HAL.
    18. Philippe Choné & Guy Laroque, 2018. "On the redistributive power of pensions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(3), pages 519-546, March.
    19. Spencer Bastani & Daniel Waldenström, 2018. "How should capital be taxed? The Swedish experience," World Inequality Lab Working Papers hal-02878153, HAL.
    20. Philippe Choné & Guy Laroque, 2014. "Income tax and retirement schemes," SciencePo Working papers Main hal-01070554, HAL.
    21. repec:spo:wpmain:info:hdl:2441/45smbs6p8180bqfu6epmve62q2 is not listed on IDEAS
    22. Stefan Steinerberger & Aleh Tsyvinski, 2020. "On Vickrey's Income Averaging," Papers 2004.06289, arXiv.org.
    23. repec:hal:wpspec:info:hdl:2441/45smbs6p8180bqfu6epmve62q2 is not listed on IDEAS
    24. Börsch-Supan, Axel & Quinn, Christopher, 2015. "Taxing pensions and retirement benefits in Germany," MEA discussion paper series 201510, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.

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    More about this item

    Keywords

    pension; income tax; social security;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • 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

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