The Central Bank of Latvia has published a working paper finding that Latvia’s 2017 personal income tax reform substantially reduced tax optimisation over short periods among older savers, while the 2018 reform mainly affected those making extensive use of tax advantages. The study examines voluntary saving through the third pension pillar and life insurance policies with a savings component, using personal income tax declaration data for 2010–2023.
The 2018 reform particularly affected individuals with high incomes and contributors close to tax deduction limits. Entry into the saving instruments responded considerably more strongly than exit, indicating pronounced behavioural inertia. Contributions increased with income and participation duration, but their sensitivity to income declined after the 2018 reform.