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Do Savers Respond to Tax Incentives? The Case of Retirement Savings

Author

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  • Clément Carbonnier
  • Alexis Direr
  • Ihssane Slimani-Houti

Abstract

This article exploits a large micro-_le tax return data to test whether savers respond to the presence of tax incentives by contributing more in saving accounts that mandate annuitization at retirement. A frictionless model of demand for annuity is first set, which highlights the phenomenon of bunching of savers around tax thresholds when consumers' budget set is kinked. Using French households income tax data, we do not find any bunching, which is consistent either with the absence of behavioral responsiveness to tax incentives or optimization frictions. We investigate the implications of the second hypothesis and propose an alternative test in which discontinuity in marginal rate of return on the two sides of tax thresholds is exploited. We find that the deduction scheme is effective in boosting the demand for annuity of the richest savers whose marginal tax rate is the highest, especially for the oldest savers (aged 45 and above). In most cases, it fails to raise contributions of younger and less wealthy savers.

Suggested Citation

  • Clément Carbonnier & Alexis Direr & Ihssane Slimani-Houti, 2014. "Do Savers Respond to Tax Incentives? The Case of Retirement Savings," Annals of Economics and Statistics, GENES, issue 113-114, pages 225-256.
  • Handle: RePEc:adr:anecst:y:2014:i:113-114:p:225-256
    DOI: 10.15609/annaeconstat2009.113-114.225
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    File URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.113-114.225
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    Cited by:

    1. Fack, Gabrielle & Landais, Camille, 2016. "The effect of tax enforcement on tax elasticities: Evidence from charitable contributions in France," Journal of Public Economics, Elsevier, vol. 133(C), pages 23-40.
    2. Clément Carbonnier, 2014. "The influence of taxes on employment of married women, evidence from the French joint income tax system," Sciences Po publications 23, Sciences Po.
    3. Alexis Direr & Eric Yayi, 2014. "Les choix de portefeuille des épargnants sur le cycle boursier et le cycle de vie," Économie et Statistique, Programme National Persée, vol. 472(1), pages 125-152.
    4. Clément Carbonnier & Gwenaële Rot & Clément Malgouyres, 2016. "Evaluation interdisciplinaire des impacts du CICE en matière de compétitivité internationale, d'investissement, d'emploi, de résultat net des entreprises et de salaires," Sciences Po publications info:hdl:2441/4v8c8tnfgu8, Sciences Po.

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