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The Influence of Decision Costs on Investments in Indivudual Savings Accounts

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  • Justin van de Ven

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    (National Institute of Economic and Social Research, London; Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

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    Abstract

    This study considers the efficacy of a tax incentivised savings scheme in context of decision making rigidities. Analysis is based on a classical life-cycle model of savings and investment decisions, augmented with a salience cost over participation in Individual Savings Accounts (ISAs) currently run in the UK. Calibration results indicate that salience costs help to match the model to observed rates of participation in ISAs. The calibrated model suggests that the price effects of ISAs are insufficient to generate appreciable increases in private sector savings, with or without salience costs. In this context, salience costs have an important influence on the distribution of welfare benefits that are delivered by the ISAs scheme.

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    Bibliographic Info

    Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2013n19.

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    Length: 57pp
    Date of creation: Jun 2013
    Date of revision:
    Handle: RePEc:iae:iaewps:wp2013n19

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    Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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    Fax: +61 3 8344 2111
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    Keywords: Decision costs; saving; uncertainty; pensions;

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