Jesper Gregers Linaa (), Lars Haagen Pedersen () and Peter Birch Pedersen ()
Jesper Gregers Linaa: De Økonomiske Råds Sekretariat
Lars Haagen Pedersen: Finansministeriet
Peter Birch Pedersen: Økonomisk Institut, Københavns Universitet
Abstract: A measure of the expected marginal effective tax rate (EMETR) on returns to savings is defined and estimates of EMETRs for Danish pension schemes are presented. Effective tax rates include explicit taxation of capital income and implicit taxation through changes in means-tested public transfers. Some key results are: (1) EMETRs on returns to pension savings tend to be regressive: Individuals who pay the top marginal income tax rate during their working lives face a lower EMETR on the returns to savings than do individuals with a working life income below this level. (2) Tenants receiving rent subsidies tend to face a higher EMETR on savings than individuals who do not receive the subsidy (including homeowners). (3) EMETRs increase with age for most income levels. In general, EMETRs vary greatly across different types of saving, different income brackets and different age groups. The outcome is a system of capital income taxation with highly intransparent distribution effects and potentially highly distortionary allocation effects.
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