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Individual Retirement Accounts: A Review of the Evidence

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  • Jonathan Skinner

Abstract

Recent legislative proposals have included restoring Individual Retirement Accounts (IRAs) to their pre-1987 eligibility rules. Whether IRAs are simply tax windfalls with no effect on saving, or whether IRAs stimulate saving, is a crucial issue in evaluating the effectiveness of such proposals. In this paper, I review the previous literature on IRAs as well as presenting new evidence on the saving behavior of IRA contributors. In brief, IRA contributors are wealthier and older than the general population. There is no clear consensus from structural economic models on whether IRA contributions are new saving or old, shuffled, saving. Nevertheless, IRA contributors during the 1980s were remarkably active savers. For example, the typical IRA contributor was estimated to hav~ increased total financial wealth in real terms by 71 percent between 1982-86. Individual Retirement Accounts may have induced saving through psychological factors not normally present in orthodox economic models, but evidence on such factors is speculative rather than conclusive.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3938.

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Date of creation: Dec 1991
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Publication status: published as Tax Notes, 54(2), January 13, 1992, pp.201-212
Handle: RePEc:nbr:nberwo:3938

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  1. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, National Bureau of Economic Research, Inc, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
  2. Steven F. Venti & David A. Wise, 1986. "IRAs and Saving," NBER Working Papers 1879, National Bureau of Economic Research, Inc.
  3. Venti, Steven F & Wise, David A, 1986. "Tax-Deferred Accounts, Constrained Choice and Estimation of Individual Saving," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(4), pages 579-601, August.
  4. Collins, Julie H. & Wyckoff, James H., 1988. "Estimates of Tax-Deferred Retirement Savings Behavior," National Tax Journal, National Tax Association, vol. 41(4), pages 561-572, December.
  5. Burman, Leonard E. & Cordes, Joseph J. & Ozanne, Larry, 1990. "IRAs and National Savings," National Tax Journal, National Tax Association, vol. 43(3), pages 259-83, September.
  6. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(2), pages 339-57, April.
  7. N. Gregory Mankiw & Stephen P. Zeldes, 1990. "The Consumption of Stockholders and Non-Stockholders," NBER Working Papers 3402, National Bureau of Economic Research, Inc.
  8. Jane G. Gravelle, 1991. "Do Individual Retirement Accounts Increase Savings?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 5(2), pages 133-148, Spring.
  9. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(2), pages S3-27, April.
  10. Long, James E., 1990. "Marginal Tax Rates and IRA Contributions," National Tax Journal, National Tax Association, vol. 43(2), pages 143-53, June.
  11. E. Philip Howrey & Saul H. Hymans, 1978. "The Measurement and Determination of Loanable-Funds Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 655-685.
  12. Steven F. Venti & David A. Wise, 1987. "Have IRAs Increased U.S. Saving?: Evidence from Consumer Expenditure Surveys," NBER Working Papers 2217, National Bureau of Economic Research, Inc.
  13. Daniel Feenberg & Jonathan Skinner, 1989. "Sources of IRA Saving," NBER Working Papers 2845, National Bureau of Economic Research, Inc.
  14. O'Neil, Cherie J. & Thompson, G. Rodney, 1988. "Taxation and IRA Participation: A Response to Long," National Tax Journal, National Tax Association, vol. 41(4), pages 591-93, December.
  15. Horioka, Charles Yuji, 1990. "Why is Japan's household saving rate so high? A literature survey," Journal of the Japanese and International Economies, Elsevier, vol. 4(1), pages 49-92, March.
  16. Carroll, Chris & Summers, Lawrence H., 1987. "Why have private savings rates in the United States and Canada diverged?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 20(2), pages 249-279, September.
  17. Evans, Owen J, 1983. "Tax Policy, the Interest Elasticity of Saving, and Capital Accumulation: Numerical Analysis of Theoretical Models," American Economic Review, American Economic Association, American Economic Association, vol. 73(3), pages 398-410, June.
  18. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 3(2), pages 37-54, Spring.
  19. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(5), pages 841-77, October.
  20. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 4(1), pages 193-205, Winter.
  21. Martin Feldstein & Daniel Feenberg, 1981. "Alternative Tax Rules and Personal Savings Incentives: Microeconomic Data and Behavioral Simulations," NBER Working Papers 0681, National Bureau of Economic Research, Inc.
  22. Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, American Economic Association, vol. 71(4), pages 533-44, September.
  23. Bovenberg, A. Lans, 1989. "Tax Policy and National Saving in the United States: A Survey," National Tax Journal, National Tax Association, vol. 42(2), pages 123-38, June.
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Cited by:
  1. Charles Mullin & Tomas Philipson, 1997. "The Future of Old-Age Longevity: Competitive Pricing of Morality Contingent Claims," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 134, Chicago - Center for Study of Economy and State.
  2. Karen E. Smith & Richard W. Johnson & Leslie A. Muller, 2004. "Deferring Income in Employer-Sponsored Retirement Plans: The Dynamics of Participant Contributions," Working Papers, Center for Retirement Research at Boston College, Center for Retirement Research 2004-20, Center for Retirement Research.

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