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Tax-preferred savings accounts and marginal tax rates: evidence on RRSP participation

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Author Info
Kevin Milligan

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Abstract

The effect of taxes on participation in Registered Retirement Savings Plans between 1982 and 1996 is studied. Interprovincial changes in the tax structure over this period provide identifying variation. Using this variation, I find that taxes influence households' participation decisions, but more weakly than previously estimated. A 10 percentage point increase in the marginal tax rate is estimated to increase the probability of participation by 8 per cent. This explains only 5.1 per cent of the trend in participation. I also find suggestive evidence that the carryforward mechanism may be used as an instrument for tax base smoothing.

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File URL: http://economics.ca/cgi/xms?jab=v35n3/02.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 35 (2002)
Issue (Month): 3 (August)
Pages: 436-456
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Handle: RePEc:cje:issued:v:35:y:2002:i:3:p:436-456

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Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

Cited by:
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  1. Frances Woolley, 2007. "Liability without control: The curious case of pension income splitting," Carleton Economic Papers 07-06, Carleton University, Department of Economics. [Downloadable!]
  2. Juan Ayuso & Juan F. Jimeno & Ernesto Villanueva, 2007. "The effects of the introduction of tax incentives on retirement savings," Banco de España Working Papers 0724, Banco de España. [Downloadable!]
  3. Sule Alan & Kadir Atalay & Thomas F. Crossley, 2006. "Do the Rich Save More in Canada?," Social and Economic Dimensions of an Aging Population Research Papers 153, McMaster University. [Downloadable!]
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  4. Michael Baker & Jonathan Gruber & Kevin Milligan, 2003. "Simulating the Response to Reform of Canada's Income Security Programs," NBER Working Papers 9455, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Gary V. Engelhardt & Brigitte C. Madrian, 2004. "Employee Stock Purchase Plans," NBER Working Papers 10421, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Sule Alan & Kadir Atalay & Thomas F. Crossley & Sung-Hee Jeon, 2009. "New Evidence on Taxes and Portfolio Choice," Social and Economic Dimensions of an Aging Population Research Papers 245, McMaster University. [Downloadable!]
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