Savings: The Policy Debate in Europe

Three issues dominate the political debate over savings in Europe: First, can private savings substitute for public pensions in the provision of retirement income, given that the current generosity of pay-as-you-go financed pensions is hardly sustainable in the light of population ageing? And if so, which policy steps have to be taken to alleviate this transition? Will there be sufficient saving? Which side effects are to be expected? The second recurrent issue concerns the evolution of a 'new financial landscape' in Europe that might necessitate policy response in terms of taxation and regulation. Specifically, how should pensions be taxed and regulated? A third closely related and hotly debated issue is harmonisation: How much harmonisation of pensions and, more generally, capital taxation is necessary in the process of European integration? The paper discusses these issues from a Continental European point of view. Our main task is to collect and review the pieces of economic theory and empirical evidence that are at our disposal in order to make informed policy choices; however, we also try to identify the gaps in our theoretical and empirical knowledge in order to caution against overly strong policy recommendations.