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The tax benefit of income smoothing

  • Rydqvist, Kristian
  • Schwartz, Steven T.
  • Spizman, Joshua D.
Registered author(s):

    A worker can reduce tax liability by contributing to a private pension plan when marginal tax rates are high and withdraw pension benefits when marginal tax rates are low. We quantify the tax benefit of income smoothing through the private retirement system and find that it is negligible. This conclusion is important to households, investment advisers, tax policymakers, and scholars engaged in financial retirement planning.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426613003853
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 38 (2014)
    Issue (Month): C ()
    Pages: 78-88

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    Handle: RePEc:eee:jbfina:v:38:y:2014:i:c:p:78-88
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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    1. Stephens, Melvin Jr & Ward-Batts, Jennifer, 2004. "The impact of separate taxation on the intra-household allocation of assets: evidence from the UK," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1989-2007, August.
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      • 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.
    4. Roed,K. & Strom,S., 1999. "Progressive taxes and the labour market : is the trade-off between equality and efficiency inevitable?," Memorandum 19/1999, Oslo University, Department of Economics.
    5. Joseph E. Stiglitz, 1986. "The General Theory of Tax Avoidance," NBER Working Papers 1868, National Bureau of Economic Research, Inc.
    6. Constantinides, George M, 1983. "Capital Market Equilibrium with Personal Tax," Econometrica, Econometric Society, vol. 51(3), pages 611-36, May.
    7. Jennifer Huang, 2008. "Taxable and Tax-Deferred Investing: A Tax-Arbitrage Approach," Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2173-2207, September.
    8. Martin Browning & Thomas F. Crossley, 2001. "The lifecycle model of consumption and saving," IFS Working Papers W01/15, Institute for Fiscal Studies.
    9. Green, Richard C. & Rydqvist, Kristian, 1999. "Ex-day behavior with dividend preference and limitations to short-term arbitrage: the case of Swedish lottery bonds," Journal of Financial Economics, Elsevier, vol. 53(2), pages 145-187, August.
    10. Christopher Ragan, 1994. "Progressive Income Taxes and the Substitution Effect of RRSPs," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 43-57, February.
    11. Burman, Leonard E. & Gale, William G. & Weiner, David, 2001. "The Taxation of Retirement Saving: Choosing Between Front-Loaded and Back-Loaded Options," National Tax Journal, National Tax Association, vol. 54(n. 3), pages 689-702, September.
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