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How do 401(k)s Affect Saving? Evidence from Changes in 401(k) Eligibility

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  • Gelber, Alexander M.

Abstract

This paper investigates the effect of 401(k) eligibility on saving. To address the possibility that eligibility correlates across individuals with their unobserved tastes for saving, I examine a change in eligibility: some individuals are initially ineligible for their 401(k) but become eligible when they have worked at their firm long enough. I find that eligibility raises 401(k) balances, but I find no evidence that other financial assets decrease. I also find no evidence that intertemporal substitution drives increases in saving following eligibility. In response to eligibility, IRA assets increase, consistent with a “crowd-in” hypothesis, and accumulation of cars decreases.

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File URL: http://mpra.ub.uni-muenchen.de/27884/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13613.

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Date of creation: 24 Feb 2009
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Handle: RePEc:pra:mprapa:13613

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Keywords: Savings; Retirement;

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References

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  1. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(4), pages 1149-1187, November.
  2. Bernheim, B. Douglas, 2002. "Taxation and saving," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249 Elsevier.
  3. Patrick J. Bayer & B. Douglas Bernheim & John Karl Scholz, 1996. "The Effects of Financial Education in the Workplace: Evidence from a Survey of Employers," NBER Working Papers 5655, National Bureau of Economic Research, Inc.
  4. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 135, Board of Governors of the Federal Reserve System (U.S.).
  5. Choi, James J. & Laibson, David & Madrian, Brigitte C., 2004. "Plan Design and 401(k) Savings Outcomes," National Tax Journal, National Tax Association, vol. 57(2), pages 275-98, June.
  6. James M. Poterba & Steven F. Venti & David A. Wise, 1992. "401(k) Plans and Tax-Deferred Saving," NBER Working Papers 4181, National Bureau of Economic Research, Inc.
  7. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 10(4), pages 73-90, Fall.
  8. David A. Wise & Steven F. Venti, 1993. "The Wealth of Cohorts: Retirement Saving and the Changing Assets of Older Americans," NBER Working Papers 4600, National Bureau of Economic Research, Inc.
  9. Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 10(4), pages 113-138, Fall.
  10. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(6), pages 1104-13, December.
  11. Orazio P. Attanasio & Thomas DeLeire, 2002. "The Effect Of Individual Retirement Accounts On Household Consumption And National Saving," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(6), pages 504-538, July.
  12. Benjamin, Daniel J., 2003. "Does 401(k) eligibility increase saving?: Evidence from propensity score subclassification," Journal of Public Economics, Elsevier, Elsevier, vol. 87(5-6), pages 1259-1290, May.
  13. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 10(4), pages 91-112, Fall.
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Cited by:
  1. Alexander M. Gelber & Matthew C. Weinzierl, 2012. "Equalizing Outcomes and Equalizing Opportunities: Optimal Taxation when Children's Abilities Depend on Parents' Resources," NBER Working Papers 18332, National Bureau of Economic Research, Inc.
  2. Felipe Kast & Stephan Meier & Dina Pomeranz, 2012. "Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device," NBER Working Papers 18417, National Bureau of Economic Research, Inc.
  3. Chetty, Raj & Friedman, John N. & Leth-Peterson, Soren & Nielsen, Torben Heien & Olsen, Tore, 2013. "Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts: Evidence from Denmark," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp13-002, Harvard University, John F. Kennedy School of Government.
  4. Alexander Gelber & Matthew Weinzierl, 2012. "Equalizing Outcomes vs. Equalizing Opportunities: Optimal Taxation when Children's Abilities Depend on Parents' Resources," Harvard Business School Working Papers, Harvard Business School 13-014, Harvard Business School, revised Mar 2014.
  5. William G. Gale & Samuel Brown, 2013. "Tax Reform for Growth, Equity, and Revenue," Public Finance Review, , , vol. 41(6), pages 721-754, November.

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