Optimum taxation of life annuities |
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Authors: | Johann K Brunner Susanne Pech |
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Institution: | 1.Department of Economics,University of Linz,Linz,Austria |
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Abstract: | The market for private life annuities is characterised by adverse selection; that is, contracts offer lower than fair payoffs
to individuals with low life expectancy. Moreover, longevity and income have been found to be positively correlated. We formulate
an optimum income taxation model that incorporates these facts and discuss the conditions under which a linear tax on annuity
payoffs, which raises more revenues from long-living individuals than from short-living, can serve as an instrument for redistribution.
Further, we consider a nonlinear tax on annuity payoffs, and find that it can be employed to correct the distortion of the
rate of return caused by asymmetric information. |
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Keywords: | |
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