Do Individual Retirement Accounts Increase Savings?
Do IRAs increase savings or are they merely a windfall for otherwise well-off taxpayers? A major objective of universal IRAs was to encourage saving for retirement. A spirited debate has ensued over the use of IRA tax deductions as a means of promoting private savings. The crucial policy issue is not whether IRA contributions were substantial; they clearly were, representing about 30 percent of personal savings from 1982 to 1986. Rather the important question is the source of IRA contributions. IRAs can be financed out of 1) tax savings themselves; 2) shifting existing assets into IRAs; 3) borrowing; 4) diverting new savings into IRAs; or 5) reducing consumption. The key question is how much of IRA savings comes from reduced consumption. For overall savings to increase, private savings must increase by more than the tax savings. Conventional economic theory and evidence strongly suggests that IRAs were not effective savings incentives. The challenge to this view rests largely on studies which have appealed to a variety of "psychological" factors not normally incorporated in economic analysis. This paper reviews both types of analysis and concludes that the conventional view remains sound. Thus, a dollar devoted to deficit reduction is likely to be a safer bet for increasing savings than a dollar devoted to IRA benefits.
Volume (Year): 5 (1991)
Issue (Month): 2 (Spring)
|Contact details of provider:|| Web page: https://www.aeaweb.org/jep/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
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.:
- 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.
- Bovenberg, A.L., 1989. "Tax policy and national savings in the United States : A survey," Other publications TiSEM 279a30b7-c4fe-45ac-b81a-e, Tilburg University, School of Economics and Management.
- 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.
When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:5:y:1991:i:2:p:133-48. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)or (Michael P. Albert)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.