This paper analyses the impact of the 2017–2018 personal income tax reforms in Latvia on long-term voluntary saving behaviour in tax-favoured instruments, namely the third pension pillar and life insurance policies with a savings component. Using rich administrative microdata from personal income tax declarations covering the period 2010–2023, we study behavioural responses along both the extensive margin (entry and exit) and the intensive margin (contribution lev-els and income elasticity). We find that the 2017 reform substantially reduced short-term tax optimisation among older individuals, while the 2018 reform primarily affected those who had previously made extensive use of the available tax advantages, particularly high-income indi-viduals and contributors close to the tax-deductible limits. Entry responses were considerably stronger than exit responses, highlighting pronounced behavioural inertia. We also find that contributions increase with income and participation duration, while income elasticity declined following the 2018 reform. The findings highlight the importance of designing tax incentives that balance fiscal costs with the objective of encouraging broad and sustained participation in voluntary retirement saving schemes.
Keywords: tax incentives, retirement savings, behavioural responses, administrative data
JEL Codes: D14, H24, H31, J26