General rights Copyright and moral rights for the publications made accessible in the public port... more General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim.
This paper models a Personal Pension with Risk sharing (PPR). We derive several relationships bet... more This paper models a Personal Pension with Risk sharing (PPR). We derive several relationships between the parameters of a PPR. For instance, we show how the Assumed Interest Rate affects the median growth rate of retirement income. Policyholders can adopt (at least) two approaches to a PPR – the investment approach and the consumption approach. In the investment approach, policyholders specify in each period how much to save or to withdraw, and how to allocate their retirement assets across different investment options. By contrast, in the consumption approach, policyholders specify the entire consumption stream in retirement exogenously. We explore these two approaches in full detail and show how they differ from each other. In accordance with (internal) habit formation, we allow for excess smoothness and excess sensitivity in retirement income.
This is a working paper and the author would welcome any comments on the present text Citations s... more This is a working paper and the author would welcome any comments on the present text Citations should refer to an unpublished manuscript, mentioning the author and the date of issuance by the International Monetary Fund The views expressed arc those of the author and do not necessarily represent those of the Fund.
This paper explores how the specification of the earnings function impacts the optimal tax treatm... more This paper explores how the specification of the earnings function impacts the optimal tax treatment of human capital. If education is complementary to labor effort, education should be subsidized to offset tax distortions on labor supply. However, if most of the education is enjoyed by high ability households, education should be taxed in order to redistribute resources to the poor. The paper identifies the exact conditions under which these two effects cancel and education should be neither taxed nor subsidized. In particular, with non-linear tax instruments, education should be weakly separable from labor and ability in the earnings function. With linear taxes, education should also feature a constant elasticity in a weakly separable earnings function.
In many countries, occupational plans are being reformed away from defined-benefit (DB) to define... more In many countries, occupational plans are being reformed away from defined-benefit (DB) to defined-contribution (DC) designs. This paper explores the case of the Netherlands, which features a particularly high ratio of occupational pension assets to GDP. Dutch occupational DB plans suffer from a number of serious weaknesses, including ambiguous ownership of assets, back-loading of benefits, and lack of tailor-made risk management. To address these weaknesses, we propose collective individual DC plans that are actuarially fair. These schemes maintain important strengths of collective schemes, such as mandatory saving, collective procurement, and pooling of biometric risks. At the same time, they eliminate intergenerational conflicts about risk management and distribution through transparent individual property rights on financial assets and tailor-made risk profiles in individual accounts. We show how the transitional burden due to phasing out the back-loading of pension benefits can be addressed without a substantial increase in contributions.
how the plans affect the after-tax return on investments and the user cost of capital. The most i... more how the plans affect the after-tax return on investments and the user cost of capital. The most important criterion in evaluating the proposals is tax neutrality. This article deals only with those incentives on saving-and invest-ment decisions that originate in the tax system. Other fac-tors, such as the risk premium, are ignored. 1 Methodology The forms of savings and investments This paper applies the methodology developed by King and Fullerton (KF) (1984) and extends this methodology in various ways. In particular, the calculations are not restricted to investments by corporations but also include investments by unincorporated businesses (the self-employed) and investments in owner-occupied dwellings. Moreover, unlike KF, we include investments in intangi-ble assets, such as research and development, marketing and company training. These expenditures typically ben-efit from immediate expensing. We distinguish six types of households, depending on their investment stategy 2 and t...
General rights Copyright and moral rights for the publications made accessible in the public port... more General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim.
To cope with demographic ageing trends, the Dutch government has implemented a wide range of inst... more To cope with demographic ageing trends, the Dutch government has implemented a wide range of institutional reforms. With this, the government has targeted public finances, the risk-taking capacity of the economy and scarce human capital as its main areas of challenge. This paper details the most prominent reforms, looking particularly at social insurance, public pensions and health care. As reforms tighten eligibility criteria and reshape institutions it is to be hoped that the emphasis will shift to capitalise upon individuals’ capabilities rather than to focus on their handicaps.
This paper reviews the pros and cons of institutionalized constraints limiting the freedom of nat... more This paper reviews the pros and cons of institutionalized constraints limiting the freedom of national budgetary policies within an Economic and Monetary Union (EMU) in Europe. The issue is approached from three angles: the influence of EMU on (i) budget discipline; (ii) intergenerational equity and intertemporal efficiency; and (iii) macroeconomic stabilization. The desirability of constraints on budgetary policy is related to the arrangements for EMU-wide monetary policy, the credibility of a no-bailout clause among member states, and progress in the area of supply-side policies.
This paper extends the standard generational accounting methodologyby incorporating prospective c... more This paper extends the standard generational accounting methodologyby incorporating prospective changes in the economic environment,assigning the benefits of government purchases to generations,distinguishing between public consumption and public investment,and transforming the generational accounts into government budgets.It applies the methodology to the Netherlands. An expected increasein labor-force participation almost offsets the adverse effectof aging on the sustainability of the Dutch public finances.Since
Whenever goods cross national borders within the channels of a multinational corporation (MNC), a... more Whenever goods cross national borders within the channels of a multinational corporation (MNC), a transfer price must be calculated for tax purposes. When corporate tax rates differ on the two sides of the border, the MNC has an incentive to set its transfer prices in a way that reduces its tax burden by reporting higher profits in the country where corporate profits are taxed more lightly. The ability of MNCs to set transfer prices to minimize taxes, however, is circumscribed by the tax regulations of the home and host countries. In the United States, Section 482 of the Internal Revenue Code requires that transfer prices for imports and exports of goods and services be set equal to "arm's length prices." Defining arm's length prices is often nontrivial. Unless the good transferred is perfectly homogeneous and has a well-functioning arm's length market, determination of "arm's length" prices will involve some arbitrariness. The process of determining arm's length prices in practice is one of negotiation with the U.S. Internal Revenue Service (IRS). The numerous court cases involving arm's length pricing (LaMont 1975) are an indication that the process is not cut and dried.
Private pensions can enhance international and intergenerational risk-sharing and create a deeper... more Private pensions can enhance international and intergenerational risk-sharing and create a deeper European capital market, which allows for better diversification of country-specific risks and facilitates economic growth. Private funding of pensions creates a more integrated European capital market and internal market for pension services. Pension funds should embrace risks in order to be able to build good pensions at reasonable costs. EU regulation of pension funds should therefore not focus on requirements to guarantee safe pensions, but rather should stimulate funds to share risks efficiently among participants and mandate funds to communicate risks transparently to individuals. Mandatory participation in stand-alone pension funds can provide the necessary commitment for better intergenerational risk-sharing. These stand-alone funds can play an important role also as trusted partners for financially illiterate consumers. The scale and type of collectives vary with the specific institutional setting of each European country. To facilitate tailormade solutions for market imperfections and behavioural issues, the EU should allow for mandatory participation and other constraints on free competition in the market for pensions.
We study optimal social insurance aimed at insuring disability risk in the presence of linear inc... more We study optimal social insurance aimed at insuring disability risk in the presence of linear income taxation. Optimal disability insurance benefits rise with previous earnings. Optimal insurance is incomplete even though disability risks are exogenous and verifiable so that moral hazard in disability insurance is absent. Imperfect insurance is optimal because it encourages workers to insure themselves against disability by working and saving more, thereby alleviating the distortionary impact of the redistributive income tax on labor supply and savings.
Using an intertemporal equilibrium model with overlapping generations, this paper explores how in... more Using an intertemporal equilibrium model with overlapping generations, this paper explores how intergenerational and international distributional effects, in addition to intertemporal efficiency impacts, affect the macroeconomic consequences of investment-promoting policies. Whereas the intergenerational distributional effects may weaken the initial expansionary effects of an investment tax credit, they strengthen the short-run positive eNects on domestic demand exerted by a lower corporate tax rate. The paper also explores several policies aimed at neutralizing the intergenerational and international distributional consequences of investmentpromoting policies.
I note an important distinction between the optimal price of environmental quality in a second-be... more I note an important distinction between the optimal price of environmental quality in a second-best world and the optimal level of environmental quality. Using an analytical general equilibrium model, I show that for reasonable parameter values, an increase in tax distortions (arising from an increase in required tax revenues) leads to a fall in the optimal Pigouvian tax rate even while environmental quality improves. In general, knowledge of the direction of changes in optimal environmental tax rates due to changes in the economy is not sufficient for understanding the impact on environmental quality.
This paper explores how the specification of the earnings function impacts optimal nonlinear taxe... more This paper explores how the specification of the earnings function impacts optimal nonlinear taxes on human capital under optimal nonlinear income taxation. If education is complementary to labor effort, education should be subsidized to offset tax distortions on labor supply. However, if education is complementary to ability, education should be taxed in order to redistribute income. If education is weakly separable from labor and ability in the earnings function, these two effects cancel and education should be neither taxed nor subsidized.
General rights Copyright and moral rights for the publications made accessible in the public port... more General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim.
This paper models a Personal Pension with Risk sharing (PPR). We derive several relationships bet... more This paper models a Personal Pension with Risk sharing (PPR). We derive several relationships between the parameters of a PPR. For instance, we show how the Assumed Interest Rate affects the median growth rate of retirement income. Policyholders can adopt (at least) two approaches to a PPR – the investment approach and the consumption approach. In the investment approach, policyholders specify in each period how much to save or to withdraw, and how to allocate their retirement assets across different investment options. By contrast, in the consumption approach, policyholders specify the entire consumption stream in retirement exogenously. We explore these two approaches in full detail and show how they differ from each other. In accordance with (internal) habit formation, we allow for excess smoothness and excess sensitivity in retirement income.
This is a working paper and the author would welcome any comments on the present text Citations s... more This is a working paper and the author would welcome any comments on the present text Citations should refer to an unpublished manuscript, mentioning the author and the date of issuance by the International Monetary Fund The views expressed arc those of the author and do not necessarily represent those of the Fund.
This paper explores how the specification of the earnings function impacts the optimal tax treatm... more This paper explores how the specification of the earnings function impacts the optimal tax treatment of human capital. If education is complementary to labor effort, education should be subsidized to offset tax distortions on labor supply. However, if most of the education is enjoyed by high ability households, education should be taxed in order to redistribute resources to the poor. The paper identifies the exact conditions under which these two effects cancel and education should be neither taxed nor subsidized. In particular, with non-linear tax instruments, education should be weakly separable from labor and ability in the earnings function. With linear taxes, education should also feature a constant elasticity in a weakly separable earnings function.
In many countries, occupational plans are being reformed away from defined-benefit (DB) to define... more In many countries, occupational plans are being reformed away from defined-benefit (DB) to defined-contribution (DC) designs. This paper explores the case of the Netherlands, which features a particularly high ratio of occupational pension assets to GDP. Dutch occupational DB plans suffer from a number of serious weaknesses, including ambiguous ownership of assets, back-loading of benefits, and lack of tailor-made risk management. To address these weaknesses, we propose collective individual DC plans that are actuarially fair. These schemes maintain important strengths of collective schemes, such as mandatory saving, collective procurement, and pooling of biometric risks. At the same time, they eliminate intergenerational conflicts about risk management and distribution through transparent individual property rights on financial assets and tailor-made risk profiles in individual accounts. We show how the transitional burden due to phasing out the back-loading of pension benefits can be addressed without a substantial increase in contributions.
how the plans affect the after-tax return on investments and the user cost of capital. The most i... more how the plans affect the after-tax return on investments and the user cost of capital. The most important criterion in evaluating the proposals is tax neutrality. This article deals only with those incentives on saving-and invest-ment decisions that originate in the tax system. Other fac-tors, such as the risk premium, are ignored. 1 Methodology The forms of savings and investments This paper applies the methodology developed by King and Fullerton (KF) (1984) and extends this methodology in various ways. In particular, the calculations are not restricted to investments by corporations but also include investments by unincorporated businesses (the self-employed) and investments in owner-occupied dwellings. Moreover, unlike KF, we include investments in intangi-ble assets, such as research and development, marketing and company training. These expenditures typically ben-efit from immediate expensing. We distinguish six types of households, depending on their investment stategy 2 and t...
General rights Copyright and moral rights for the publications made accessible in the public port... more General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim.
To cope with demographic ageing trends, the Dutch government has implemented a wide range of inst... more To cope with demographic ageing trends, the Dutch government has implemented a wide range of institutional reforms. With this, the government has targeted public finances, the risk-taking capacity of the economy and scarce human capital as its main areas of challenge. This paper details the most prominent reforms, looking particularly at social insurance, public pensions and health care. As reforms tighten eligibility criteria and reshape institutions it is to be hoped that the emphasis will shift to capitalise upon individuals’ capabilities rather than to focus on their handicaps.
This paper reviews the pros and cons of institutionalized constraints limiting the freedom of nat... more This paper reviews the pros and cons of institutionalized constraints limiting the freedom of national budgetary policies within an Economic and Monetary Union (EMU) in Europe. The issue is approached from three angles: the influence of EMU on (i) budget discipline; (ii) intergenerational equity and intertemporal efficiency; and (iii) macroeconomic stabilization. The desirability of constraints on budgetary policy is related to the arrangements for EMU-wide monetary policy, the credibility of a no-bailout clause among member states, and progress in the area of supply-side policies.
This paper extends the standard generational accounting methodologyby incorporating prospective c... more This paper extends the standard generational accounting methodologyby incorporating prospective changes in the economic environment,assigning the benefits of government purchases to generations,distinguishing between public consumption and public investment,and transforming the generational accounts into government budgets.It applies the methodology to the Netherlands. An expected increasein labor-force participation almost offsets the adverse effectof aging on the sustainability of the Dutch public finances.Since
Whenever goods cross national borders within the channels of a multinational corporation (MNC), a... more Whenever goods cross national borders within the channels of a multinational corporation (MNC), a transfer price must be calculated for tax purposes. When corporate tax rates differ on the two sides of the border, the MNC has an incentive to set its transfer prices in a way that reduces its tax burden by reporting higher profits in the country where corporate profits are taxed more lightly. The ability of MNCs to set transfer prices to minimize taxes, however, is circumscribed by the tax regulations of the home and host countries. In the United States, Section 482 of the Internal Revenue Code requires that transfer prices for imports and exports of goods and services be set equal to "arm's length prices." Defining arm's length prices is often nontrivial. Unless the good transferred is perfectly homogeneous and has a well-functioning arm's length market, determination of "arm's length" prices will involve some arbitrariness. The process of determining arm's length prices in practice is one of negotiation with the U.S. Internal Revenue Service (IRS). The numerous court cases involving arm's length pricing (LaMont 1975) are an indication that the process is not cut and dried.
Private pensions can enhance international and intergenerational risk-sharing and create a deeper... more Private pensions can enhance international and intergenerational risk-sharing and create a deeper European capital market, which allows for better diversification of country-specific risks and facilitates economic growth. Private funding of pensions creates a more integrated European capital market and internal market for pension services. Pension funds should embrace risks in order to be able to build good pensions at reasonable costs. EU regulation of pension funds should therefore not focus on requirements to guarantee safe pensions, but rather should stimulate funds to share risks efficiently among participants and mandate funds to communicate risks transparently to individuals. Mandatory participation in stand-alone pension funds can provide the necessary commitment for better intergenerational risk-sharing. These stand-alone funds can play an important role also as trusted partners for financially illiterate consumers. The scale and type of collectives vary with the specific institutional setting of each European country. To facilitate tailormade solutions for market imperfections and behavioural issues, the EU should allow for mandatory participation and other constraints on free competition in the market for pensions.
We study optimal social insurance aimed at insuring disability risk in the presence of linear inc... more We study optimal social insurance aimed at insuring disability risk in the presence of linear income taxation. Optimal disability insurance benefits rise with previous earnings. Optimal insurance is incomplete even though disability risks are exogenous and verifiable so that moral hazard in disability insurance is absent. Imperfect insurance is optimal because it encourages workers to insure themselves against disability by working and saving more, thereby alleviating the distortionary impact of the redistributive income tax on labor supply and savings.
Using an intertemporal equilibrium model with overlapping generations, this paper explores how in... more Using an intertemporal equilibrium model with overlapping generations, this paper explores how intergenerational and international distributional effects, in addition to intertemporal efficiency impacts, affect the macroeconomic consequences of investment-promoting policies. Whereas the intergenerational distributional effects may weaken the initial expansionary effects of an investment tax credit, they strengthen the short-run positive eNects on domestic demand exerted by a lower corporate tax rate. The paper also explores several policies aimed at neutralizing the intergenerational and international distributional consequences of investmentpromoting policies.
I note an important distinction between the optimal price of environmental quality in a second-be... more I note an important distinction between the optimal price of environmental quality in a second-best world and the optimal level of environmental quality. Using an analytical general equilibrium model, I show that for reasonable parameter values, an increase in tax distortions (arising from an increase in required tax revenues) leads to a fall in the optimal Pigouvian tax rate even while environmental quality improves. In general, knowledge of the direction of changes in optimal environmental tax rates due to changes in the economy is not sufficient for understanding the impact on environmental quality.
This paper explores how the specification of the earnings function impacts optimal nonlinear taxe... more This paper explores how the specification of the earnings function impacts optimal nonlinear taxes on human capital under optimal nonlinear income taxation. If education is complementary to labor effort, education should be subsidized to offset tax distortions on labor supply. However, if education is complementary to ability, education should be taxed in order to redistribute income. If education is weakly separable from labor and ability in the earnings function, these two effects cancel and education should be neither taxed nor subsidized.
Uploads
Papers by Lans Bovenberg