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Progressive Tax Changes to Private Pensions in a Life-Cycle Framework

George Kudrna () and Alan Woodland ()

No 201209, Working Papers from ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales

Abstract: Tax concessions are a common feature of private pension pillars around the world. Most countries exempt pension fund earnings from any taxation but tax either benefits (EET regime) or contributions (TEE regime) progressively as regular private income. By contrast, Australia's superannuation taxation features concessional flat tax rates on contributions and fund earnings, with benefits being generally tax free. Concerned with the vertical equity of the current superannuation tax concessions, this paper provides a quantitative analysis of hypothetical replacements of the existing superannuation tax treatment with the EET and TEE regimes commonly found in other countries. Using a general equilibrium OLG model calibrated for Australia, we find that these hypothetical tax reforms to superannuation improve the vertical equity in the short, medium and long run, as indicated by larger relative welfare gains and income improvements experienced by lower income households.

Keywords: Compulsory saving; pension and tax reforms; dynamic OLG model (search for similar items in EconPapers)
JEL-codes: H55 E21 C68 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge and nep-pub
Date: 2012-01
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