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The Effect of the Current Ira Program on Federal Debt

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  • Frank Caliendo
  • W. Cris Lewis

Abstract

This article analyzes the long-term impact of the current individual retirement account (IRA) program on government debt. The initial work on this subject was conducted by Feldstein (1995), who argued that the traditional IRA has a favorable long-term effect on government debt. Yet, absent from the literature is any formal extension of Feldstein’s model to include the Roth IRA. Using modeling techniques similar to Feldstein, the Roth IRA is shown to have a negative long-term effect on government debt. The model includes personal and corporate tax revenue collections, the cost of government debt, the source of Roth IRA saving, the payment source of the taxes paid on Roth contributions, and optimal investment strategies. Aconceptual, newtype of IRA is proposed as a replacement for the Roth IRA.

Suggested Citation

  • Frank Caliendo & W. Cris Lewis, 2004. "The Effect of the Current Ira Program on Federal Debt," Public Finance Review, , vol. 32(3), pages 331-351, May.
    • Handle: RePEc:sae:pubfin:v:32:y:2004:i:3:p:331-351
    DOI: 10.1177/1091142104263863
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    References listed on IDEAS

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    1. Gale, William G & Scholz, John Karl, 1994. "IRAs and Household Saving," American Economic Review, American Economic Association, vol. 84(5), pages 1233-1260, December.
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    5. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," Books, American Enterprise Institute, number 53540, September.
    6. Burman, Leonard E. & Cordes, Joseph J. & Ozanne, Larry, 1990. "IRAs and National Savings," National Tax Journal, National Tax Association;National Tax Journal, vol. 43(3), pages 259-283, September.
    7. Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, vol. 84(2), pages 186-192, May.
    8. 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.
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