In 1994, following widespread reforms to the taxation of capital income and wealth in member countries, the OECD released a landmark report on Taxation and Household Savings. A range of recent developments make a re-examination of the topic timely. In particular, income and wealth inequality has increased in many countries. This has been brought into particular focus as a result of the 2008 global financial and economic crisis, leading to strong calls for greater taxation of capital income and wealth in many countries. Furthermore, ground-breaking changes are being made in the international tax environment to prevent capital income and wealth being hidden offshore. Meanwhile, concern about low levels of retirement savings persist, particularly in light of continued population ageing.

Following the 2008 financial and economic crisis, there has been renewed interest in the taxation of household savings as a means of strengthening the efficiency and fairness of countries’ tax systems. Strong calls have come from civil society to increase capital taxation to address income and wealth inequality. Meanwhile, the recent move towards the automatic exchange of financial account information between tax administrations is likely to make it harder for taxpayers to evade tax by hiding income and wealth offshore.

This chapter sets the scene for a detailed analysis of the taxation of savings in OECD and partner economies. The chapter examines recent trends in inequality and population ageing. It then summarises the economic literature on the impact of taxation on household savings. Finally, it provides an outline of the structure of the rest of the report.

This chapter investigates how countries tax household savings. Broad trends in design approaches are identified and a summary of the key design features adopted by countries is provided. The chapter finds wide variation in approaches to taxing household savings both across and within countries, and across different asset types.

This chapter presents estimates of marginal effective tax rates (METRs) across a range of savings vehicles for 40 OECD and key partner countries to assess the effect of tax systems on the incentives individuals face to save in different forms. The results highlight significant variation in METRs across savings vehicles, with tax systems creating significant incentives to alter portfolio allocation away from that which would be optimal in the absence of taxation. Private pension funds tend to be the most tax-favoured, with owner-occupied residential property also significantly tax-favoured. In contrast to owner-occupied residential property, rental property is often subject to relatively high METRs due to the application of progressive marginal personal income tax rates, capital gains taxes and significant property taxes. Bank accounts and corporate bonds also tend to be relatively heavily taxed in many countries.

This chapter analyses patterns of asset holdings in selected OECD countries across both income and wealth distributions. The analysis draws on income and asset-holdings microdata for 18 countries from the Eurosystem Household Finance and Consumption Survey (HFCS). Patterns of asset holdings are found to vary substantially across both income and wealth distributions, with significant implications for the distributional effects of the taxation of household savings.

This chapter discusses the taxation of household savings from an international perspective, and considers the impact of exchange of financial account information between tax administrations on the taxation of capital income internationally. The chapter discusses the recent adoption and expansion of exchange of information in detail, highlighting the dramatic increase in the coverage of exchange of information networks. The automatic exchange of information is likely to make it harder for taxpayers to engage in tax evasion and may reduce the distortions involved in levying taxes on capital income. The chapter also highlights potential challenges that remain with respect to ensuring the coherent taxation of capital income on a residence basis in an international context.

This chapter presents the conclusions of the Taxation of Houshold Savings report and discusses potential tax policy options. It concludes that, while countries do not necessarily need to tax household savings more, there is significant scope to improve the way countries tax household savings. Most significantly, there are opportunities for countries to increase neutrality in taxation across assets and thereby improve both the efficiency and fairness of their tax systems. There may also be opportunities for many countries to increase progressivity in their taxation of savings. At the same time, there remains a case for well-designed preferential tax treatment of private pensions in order to encourage retirement savings. The chapter also highlights opportunities for improvement in tax design regarding private pensions and in a number of other areas such as residential property, in particular to improve the equity of the tax system.