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When and How to Subsidize Tax-Favored Retirement Accounts?

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Author Info

  • Andras Simonovits

    ()
    (Institute of Economics - Hungarian Academy of Sciences, Department of Economics - CEU, Mathematical Institute - Budapest University of Technology)

Abstract

When and how to subsidize tax-favored pension accounts? To defend myopic workers against themselves, the government introduces a mandatory system but to help savers, it adds taxfavored retirement accounts. If the mandatory system is progressive, then a proportional voluntary system can beneficially dampen the redistribution. If the mandatory system is proportional, then a progressive voluntary system may raise the old-age consumption of the lower-paid. But if both the mandatory and the voluntary systems are proportional and the ceiling is high (as is the case in Hungary), then the latter does not diminish the tension of the mandatory system.

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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0902.

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Length: 28 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:has:discpr:0902

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Keywords: mandatory pensions; tax-favored retirement accounts; voluntary contributions; subsidies;

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References

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  1. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall.
  2. Tonin, Mirco, 2011. "Minimum wage and tax evasion: Theory and evidence," Journal of Public Economics, Elsevier, vol. 95(11), pages 1635-1651.
  3. Feldstein, Martin S, 1987. "Should Social Security Benefits Be Means Tested?," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 468-84, June.
  4. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "For Better or For Worse: Default Effects and 401(k) Savings Behavior," JCPR Working Papers 256, Northwestern University/University of Chicago Joint Center for Poverty Research.
  5. R. Glenn Hubbard & Jonathan S. Skinner, 2009. "Assessing the Effectiveness of Saving Incentives," Books, American Enterprise Institute, number 24067, 7.
  6. Börsch-Supan, Axel & Reil-Held, Anette & Schunk, Daniel, 2008. "Saving incentives, old-age provision and displacement effects: evidence from the recent German pension reform," Journal of Pension Economics and Finance, Cambridge University Press, vol. 7(03), pages 295-319, November.
  7. James Sefton & Justin vandeVen & Martin Weale, 2008. "Means Testing Retirement Benefits: fostering equity or discouraging savings?," Economic Journal, Royal Economic Society, vol. 118(528), pages 556-590, 04.
  8. Disney Richard, 2004. "Are contributions to public pension programmes a tax on employment?," Economic Policy, CEPR & CES & MSH, vol. 19(39), pages 267-311, 07.
  9. B. Douglas Bernheim, 1999. "Taxation and Saving," NBER Working Papers 7061, National Bureau of Economic Research, Inc.
  10. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
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Cited by:
  1. Andras Simonovits, 2013. "A family of simple paternalistic transfer models," IEHAS Discussion Papers 1324, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Andras Simonovits, 2009. "Hungarian Pension System and its Reform," IEHAS Discussion Papers 0908, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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