To address the question of whether IRA5 contribute to capital formation, we use the IRS/University of Michigan taxpayer sample for income tax returns during 1980-84. By matching families across a five-year period, we can estimate the dynamic interactions of IRA purchases and other types of saving, correct for individual differences, and test whether IRA purchases are in part offset by other (net) asset sales. The "reshuffling" hypothesis implies that taxpayers who enroll in IRAs should, over time, experience a drop in net taxable interest and dividend income as their taxable assets (or new loans) are used to purchase IRAs. Conversely, the "new saving" view of IRAs implies that taxable interest and dividend income should be unaffected by IRA purchases. We find little or no evidence which favors the view that IRAs are funded by cashing out existing taxable assets. In fact, individuals who purchased IRAs in each year between 1982-84 increased their asset holdings by more than those who did not purchase IRAs. In one sense, our results strongly confirm the studies by Venti and Wise and Hubbard that IRA saving represents new saving. But shuffling could still occur, albeit on a secondary level: families who are accumulating both taxable assets and IRAs might have accumulated even more taxable assets had IRA5 not been available
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Length: Date of creation: Feb 1989 Date of revision: Handle: RePEc:nbr:nberwo:2845
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Chapter
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.
[Downloadable!]
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Steven F. Venti & David A. Wise, 1986.
"IRAs and Saving,"
NBER Working Papers
1879, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Steven F. Venti & David A. Wise, 1987.
"IRAs and Saving,"
NBER Chapters,
in: The Effects of Taxation on Capital Accumulation, pages 7-52
National Bureau of Economic Research, Inc.
[Downloadable!]
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
James M. Poterba & Steven F. Venti, 1994.
"401(k) Plans and Tax-Deferred Saving,"
NBER Chapters,
in: Studies in the Economics of Aging, pages 105-142
National Bureau of Economic Research, Inc.
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