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How Should Pensions be Taxed? Theoretical Considerations and the Scandinavian Experience

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  • Torben M. Andersen

Abstract

How should pensions be taxed? In many cases pension savings are usually taxed more leniently than other forms of savings. What is the rationale for this? And are those concerns best targeted via taxation or mandatory pension savings? These issues are discussed with outset in the experience of the Scandinavian countries (Denmark and Sweden). These countries are also interesting because they have implemented a dual income taxation scheme; i.e. they pursue an ETT-taxation regime vis a vis pensions. It is argued that the incentive structure related to pension savings and retirement can not be seen independently from how private pensions (and savings more generally) affect public pensions via meanstesting. The effective rates of taxation may thus differ significantly from the nominal rates. For Denmark and Sweden it is shown that the effective tax rates on pension savings can be rather high, and for low/medium income close to 100%.

Suggested Citation

  • Torben M. Andersen, 2015. "How Should Pensions be Taxed? Theoretical Considerations and the Scandinavian Experience," CESifo Working Paper Series 5660, CESifo.
    • Handle: RePEc:ces:ceswps:_5660
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    Cited by:

    1. Mikkel Barslund, 2020. "Pension Systems in the EU — Some Policy Issues," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(2), pages 69-72, March.

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    More about this item

    Keywords

    pensions; taxation; means-testing; distribution; effective tax rates;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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