Inequalities between retirees and workers: an empirical model to capture the effect of taxation

French pensioners benefit from tax deductions. In the context of pension system reform and given the impact of the current financial and economic crisis on government deficits, the tax preference given to senior citizens raises questions. Lavigne (2006) asks, "Should we give tax benefits to the elderly?" The author explains that the tax benefits given to retirees imply considerable public tax expenditures that are unjustifiable in terms of equity. Current retirees enjoy an average standard of living, nearly equivalent to that of persons in the labour force (See El Mekkaoui De Freitas et al., 2008, and Conseil d'Orientation des retraites, 2009). According to the French statistical institute (INSEE), the ratio of retired individuals' income per consumption unit to that of workers was approximately 0.89 in 2003 (0.96 including capital income). Moreover, pensioners' incomes are, on average, 102% of the average income of the population. Inter-cohort inequalities do not seem to justify these tax exemptions. Pensions are more equally distributed than income received from employment (See Brown and Prus, 2006), and intra-cohort inequality does not seem to be a more convincing explanation.