NETHERLANDS - The unique nature of the Dutch pension system has contributed to higher volatility in the government's tax revenues, according to a new report.
"The unique feature of the Dutch pension system may have contributed to the increased volatility in tax revenues," the International Monetary Fund stated.
"The Dutch system, highly acclaimed as it rightly should be, relies on private pension schemes as complements to public pensions," the report added.
It has two characteristics with important implications for tax revenues: the mostly defined benefit nature of the funds and the fact that the Netherlands allows income tax deduction of pension contributions.
"This means that changes in pension contributions that may follow changes in the funds' asset holdings will have a direct impact on tax receipts," the IMF said in a 79-page study on the Netherlands.
There was "empirical evidence" that large fluctuations in the value of their assets had led Dutch pension funds to change pension premia with some frequency since the mid-1990s.
"An analysis for the past 30 years shows a clear negative relationship between tax ratios and pension premia. Such a relationship has been most marked over the past decade, which may in turn reflect increases in coverage of private pension schemes."
While fluctuations in pension premia affect tax revenues primarily through the deductibility of contributions, they is also another, indirect, role. That's via the impact of pension premia on people's disposable income and consumption.