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Distributional Impacts of Canada's Tax-Free Savings Accounts

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  • Ashraf Al Zaman

Abstract

Since 2009, Canadians have had the opportunity to contribute to tax-free savings accounts (TFSAs). This study provides insight into the attributes of TFSA participants. I use data from the Canada Revenue Agency (CRA) for general participation trends and the 2012 Survey of Financial Security (SFS) to examine the socio-economic characteristics of participants and their contributions. Examining data from the CRA, I find that the majority of tax-filing Canadians did not participate in the TFSA program by 2013, with age and income level affecting participation and contribution decisions. Evidence from the SFS data corroborates that obtained from the CRA data. I find that households with children or households headed by individuals with less than postsecondary education are less likely to participate. In addition, I find that households with higher net worth are more likely to participate and contribute more. Consequently, I conclude that TFSAs are likely to have an economically significant distributional impact, making them less attractive on distributional grounds.

Suggested Citation

  • Ashraf Al Zaman, 2017. "Distributional Impacts of Canada's Tax-Free Savings Accounts," Canadian Public Policy, University of Toronto Press, vol. 43(4), pages 331-349, December.
    • Handle: RePEc:cpp:issued:v:43:y:2017:i:4:p:331-349
    DOI: 10.3138/cpp.2016-039
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    Cited by:

    1. Adam M. Lavecchia, 2019. ""Back-Loaded" Tax Subsidies for Saving, Asset Location and Crowd-Out: Evidence from Tax-Free Savings Accounts," Department of Economics Working Papers 2019-04, McMaster University.

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