Savings, pension rights and taxation

Abstract

The voluntary saving rate has declined in The Netherlands over the last thirty years. In this paper the increasing share of transfer income in total income, with a high propensity to consume, and the increase in collective pension schemes are simultaneously used to explain this development. Furthermore, the influence of taxes is modelled. The planning horizon of the representative consumer is treated as a parameter to be estimated. The planning horizon obtained (about 4.5 years) appears to be short compared to expected residual lifetime, implying rather small interest elasticities. The estimation results indicate that, in case the obligatory pension schemes are diminished, the representative consumer offsets the loss in pension benefits for 75 per cent by voluntary, additional accumulation of nonhuman wealth in the long run. The working of the model is illustrated by simulation experiments.