Jan Walliser

Tax Incentives, Bequest Motives, and the Demand for Life Insurance: Evidence from Two Natural Experiments in Germany

Whole life insurance plays an important role in household saving. However, empirical evidence on its determinants is scarce. This paper studies two natural experiments to identify the effects of tax incentives and bequest motives on life-insurance demand. An unanticipated tax reform in 2000 halved the tax exemption limit for capital income in Germany. We document that the demand for life insurance reacted strongly to this change. With regard to bequest motives, we analyze the demand for life insurance in the former German Democratic Republic (GDR). Relative to market-based economies, the socialist GDR can be viewed as an experimental institutional setting where life-insurance demand was not influenced by tax considerations which allows us to isolate bequest motives while controlling for life-cycle and precautionary motives. We find a significantly higher ownership probability among households with children and a high regard for the family, confirming bequest motives in life-insurance demand.

Regulation of withdrawals in individual account systems

Funded mandatory pension systems based on individual accounts are spreading around the world. With the maturation of these systems, regulating the withdrawal of retirement savings will become increasingly important. Government regulation of withdrawals should mandate the purchase of inflation-indexed life annuities exceeding income available from government welfare programs for the retiree and potential survivors. Proper functioning of insurance markets does not, however, require annuitizing the entire account balance. Instead, more flexibility for the choice of withdrawals could be permitted for any remaining funds, helping to tailor income streams to individual needs and living arrangements.

Generational Accounting in New Zealand: Is There Generational Balance?

This paper uses a recently-developed technique, calledgenerational accounting, to assess New Zealands long-term fiscalposition. Generational accounting has become a popular alternativeto traditional deficit accounting, because it provides a moreaccurate picture of the intergenerational distribution of fiscalburdens and the associated macroeconomic effects, particularlyin the presence of demographic transitions and large unfundedpublic transfer programs. Past studies have suggested the existenceof significant generational imbalances in several countries.We find that behind New Zealands projectedbudget surpluses, there is indeed a sound fiscal picture. Evenunder the base case scenario, which entails substantial short-runtax reductions, the burden on future generations (relative toincome) is projected to fall slightly below that on current newborns.New Zealand appears to have avoided the large fiscal imbalancesplaguing the United States and other OECD countries not by placinglarge tax burdens on young current generations, but by limitingthe size of its commitments.