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The tax benefit of income smoothing

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  • Rydqvist, Kristian
  • Schwartz, Steven T.
  • Spizman, Joshua D.
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    Abstract

    A worker can reduce tax liability by contributing to a private pension plan when marginal tax rates are high and withdraw pension benefits when marginal tax rates are low. We quantify the tax benefit of income smoothing through the private retirement system and find that it is negligible. This conclusion is important to households, investment advisers, tax policymakers, and scholars engaged in financial retirement planning.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426613003853
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 38 (2014)
    Issue (Month): C ()
    Pages: 78-88

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    Handle: RePEc:eee:jbfina:v:38:y:2014:i:c:p:78-88

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Private pensions; Life-cycle model; Tax progressivity;

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    References

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    1. Milligan, Kevin, 2003. "How do contribution limits affect contributions to tax-preferred savings accounts?," Journal of Public Economics, Elsevier, vol. 87(2), pages 253-281, February.
    2. Burman, Leonard E. & Gale, William G. & Weiner, David, 2001. "The Taxation of Retirement Saving: Choosing Between Front-Loaded and Back-Loaded Options," National Tax Journal, National Tax Association, vol. 54(n. 3), pages 689-702, September.
    3. Daniel Feenberg & Jonathan Skinner, 1989. "Sources of IRA Saving," NBER Working Papers 2845, National Bureau of Economic Research, Inc.
      • Daniel Feenberg & Jonathan Skinner, 1989. "Sources of IRA Saving," NBER Chapters, in: Tax Policy and the Economy, Volume 3, pages 25-46 National Bureau of Economic Research, Inc.
    4. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
    5. Melvin Stephens Jr. & Jennifer Ward-Batts, 2001. "The Impact of Separate Taxation on the Intra-Household Allocation of Assets: Evidence from the UK," NBER Working Papers 8380, National Bureau of Economic Research, Inc.
    6. Roed,K. & Strom,S., 1999. "Progressive taxes and the labour market : is the trade-off between equality and efficiency inevitable?," Memorandum 19/1999, Oslo University, Department of Economics.
    7. Joseph E. Stiglitz, 1986. "The General Theory of Tax Avoidance," NBER Working Papers 1868, National Bureau of Economic Research, Inc.
    8. Jennifer Huang, 2008. "Taxable and Tax-Deferred Investing: A Tax-Arbitrage Approach," Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2173-2207, September.
    9. Constantinides, George M, 1983. "Capital Market Equilibrium with Personal Tax," Econometrica, Econometric Society, vol. 51(3), pages 611-36, May.
    10. Green, Richard C. & Rydqvist, Kristian, 1999. "Ex-day behavior with dividend preference and limitations to short-term arbitrage: the case of Swedish lottery bonds," Journal of Financial Economics, Elsevier, vol. 53(2), pages 145-187, August.
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