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How do contribution limits affect contributions to tax-preferred savings accounts?

  • Milligan, Kevin

Contributions to tax-preferred savings accounts are typically constrained by a contribution limit. These limits influence contributions not just in periods in which they bind, but in other periods as well. I develop a simple life-cycle model in which consumers exhibit "use-it-or-lose-it" contribution behaviour. This connects current contributions to future contribution limits, which leads to the result that an increase in contribution limits can decrease contributions. Empirical evidence provides support for the model--larger future contribution room is associated with smaller contributions.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 87 (2003)
Issue (Month): 2 (February)
Pages: 253-281

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Handle: RePEc:eee:pubeco:v:87:y:2003:i:2:p:253-281
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Long, James E., 1990. "Marginal Tax Rates and IRA Contributions," National Tax Journal, National Tax Association, vol. 43(2), pages 143-53, June.
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  8. B. Douglas Bernheim, 1999. "Taxation and Saving," Working Papers 99007, Stanford University, Department of Economics.
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  14. 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.
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  16. Michael J. Daly, 1981. "The Role of Registered Retirement Savings Plans in a Life-Cycle Model," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 409-21, August.
  17. Jane G. Gravelle, 1991. "Do Individual Retirement Accounts Increase Savings?," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 133-148, Spring.
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