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Income and saving responses to tax incentives for private retirement savings

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  • Chan, Marc K.
  • Morris, Todd
  • Polidano, Cain
  • Vu, Ha

Abstract

Many governments offer tax concessions for retirement contributions. In this paper, we show that income responses are crucial for understanding their effectiveness in raising retirement savings and alleviating the fiscal pressures of population aging. Using tax register data, we study large changes in caps on tax-favored contributions to individual retirement accounts in Australia. We find that higher caps increase retirement contributions considerably, with around two-thirds of this response financed by increases in earned income. The resulting gain in income tax revenue offsets the fiscal loss from tax concessions, highlighting the importance of taking income and labor supply responses into account.

Suggested Citation

  • Chan, Marc K. & Morris, Todd & Polidano, Cain & Vu, Ha, 2022. "Income and saving responses to tax incentives for private retirement savings," Journal of Public Economics, Elsevier, vol. 206(C).
    • Handle: RePEc:eee:pubeco:v:206:y:2022:i:c:s0047272721002346
    DOI: 10.1016/j.jpubeco.2021.104598
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    References listed on IDEAS

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    Cited by:

    1. Mukherjee, Sacchidananda, 2022. "Trends and Patterns of Tax Expenditures on Union Taxes in India," Working Papers 22/380, National Institute of Public Finance and Policy.
    2. Laurence O'Brien, 2024. "The effect of tax incentives on retirement saving," IFS Working Papers W24/45, Institute for Fiscal Studies.
    3. Kucuk, Merve & Ulubasoglu, Mehmet & Vu, Ha, 2024. "Stormy Futures? The Impact of Climatic Shocks on Retirement Savings," MPRA Paper 121241, University Library of Munich, Germany.
    4. Laurence O'Brien, 2023. "The effect of tax incentives on private pension saving," IFS Working Papers W23/10, Institute for Fiscal Studies.

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    More about this item

    Keywords

    Tax concessions; Retirement saving; Taxable income; Labor supply;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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