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The Illusory Effects of Saving Incentives on Saving

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  • Eric M. Engen
  • William G. Gale
  • John Karl Scholz

Abstract

The authors evaluate research on how tax-based saving incentives (IRAs and 401(k)s) affect saving. Previous research overstates the impact of the incentives on saving by failing to account for several issues: households with saving incentives have stronger tastes for saving than others; saving incentives have interacted with debt, nonfinancial assets, financial markets, and pensions; and saving incentives represent pretax balances, whereas taxable accounts represent posttax balances. Accounting for these issues essentially eliminates the impact of saving incentives on saving. The authors conclude that little if any of the contributions to existing saving incentives have raised saving.

Suggested Citation

  • Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 113-138, Fall.
    • Handle: RePEc:aea:jecper:v:10:y:1996:i:4:p:113-38
    Note: DOI: 10.1257/jep.10.4.113
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.10.4.113
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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