Social protection in old age through taxes? An empirical analysis of the equity impact of taxes on pensions in the EU

Authors

Ella-Marie Assal, Sakura Panagamuwa Gamage, Gerlinde Verbist

Publication Date

Jul 2023

Abstract

Living standards in old age are affected both by the pension system and the tax system. Yet, little research analyses the interaction between both systems. In this paper, we connect the principles of the pension system (solidarity vs. insurance) to the principles of the tax system (vertical equity vs. horizontal equity), and analyse to what extent they are in line with each other for 28 European countries. We find that horizontal equity is not relatively more important in insurance-based countries, nor is vertical equity relatively more important in solidarity-based countries. Countries that deviate from horizontal equity are able to do so without taxing pensioners into poverty. In contrast, where the tax system deviates from horizontal equity in favour of workers, this comes at the cost of taxing relatively larger shares of pensioners into poverty. Our results highlight the interlinkages of both systems and the importance of studying them together.

Publication type

EUROMOD Working Paper Series

Series Number

EM4/23

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