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Longevity Risk and Taxation of Public Pensions

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  • 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

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    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.
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    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.
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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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