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Tax Misperceptions and the Effect of Informational Tax Nudges on Retirement Savings

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  • Kay Blaufus

    (Faculty of Economics and Management, Institute for Business Taxation, D 30167 Hanover, Germany)

  • Michael Milde

    (Faculty of Economics and Management, Institute for Business Taxation, D 30167 Hanover, Germany)

Abstract

Despite subjects being informed about tax rules before making saving decisions, we find—using laboratory experiments—that deferred taxation results in after-tax pensions that are approximately 25% lower compared with an economically equivalent immediate pension-tax system. This indicates substantial tax misperceptions. For subjects with low tax knowledge, tax misperceptions remain stable, even if they have gained experience. Tax misperceptions nearly disappear for all subjects only if we provide recurrent numerical informational pension-tax nudges and if subjects have gained experience. We demonstrate that replacing the tax-deductibility of retirement savings with government matching contributions increases after-tax pensions above the level under immediate taxation without the need to provide informational tax nudges.

Suggested Citation

  • Kay Blaufus & Michael Milde, 2021. "Tax Misperceptions and the Effect of Informational Tax Nudges on Retirement Savings," Management Science, INFORMS, vol. 67(8), pages 5011-5031, August.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:8:p:5011-5031
    DOI: 10.1287/mnsc.2020.3761
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