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Private Saving and Public Policy

In: Tax Policy and the Economy, Volume 7

  • B. Douglas Bernheim
  • John Karl Scholz

The evidence presented in this paper supports the view that many Americans, particularly those without a college education, save too little. Our analysis also indicates that it should be possible to increase total personal saving among lower income households by encouraging the formation and expansion of private pension plans. It is doubtful that favorable tax treatment of capital income would stimulate significant additional saving by this group. Conversely, the expansion of private pensions would probably have little effect on saving by higher income households. However, these households are more likely to increase saving significantly in response to favorable tax treatment of capital income. Currently, eligibility for IRAs is linked to an AGI cap, and pension coverage is more common among higher income households than among low income households. The most effective system for promoting personal saving would have precisely the opposite features. Extending tax incentives for saving to higher income households is problematic. We discuss three competing policy options, IRAs with AGI caps, the universal IRA, and the Premium Saving Account (PSA). Our analysis reveals that the PSA system is a more cost-effective vehicle for providing saving incentives to, all households, particularly those in the top quintile of the income distribution.

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This chapter was published in:
  • James M. Poterba, 1993. "Tax Policy and the Economy, Volume 7," NBER Books, National Bureau of Economic Research, Inc, number pote93-1, December.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10878.
    Handle: RePEc:nbr:nberch:10878
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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    1. Kotlikoff, Laurence J & Spivak, Avia & Summers, Lawrence H, 1982. "The Adequacy of Savings," American Economic Review, American Economic Association, vol. 72(5), pages 1056-69, December.
    2. Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
    3. Zvi Bodie & John B. Shoven & David A. Wise, 1988. "Pensions in the U.S. Economy," NBER Books, National Bureau of Economic Research, Inc, number bodi88-1, December.
    4. Gale, W.G. & Scholz, J.K., 1990. "Iras And Household Savings," Working papers 9009, Wisconsin Madison - Social Systems.
    5. Steven F. Venti & David A. Wise, 1987. "Aging, Moving, and Housing Wealth," NBER Working Papers 2324, National Bureau of Economic Research, Inc.
    6. Bernheim, B Douglas & Stark, Oded, 1988. "Altruism within the Family Reconsidered: Do Nice Guys Finish Last?," American Economic Review, American Economic Association, vol. 78(5), pages 1034-45, December.
    7. Martin Feldstein, 1992. "College Scholarship Rules and Private Saving," NBER Working Papers 4032, National Bureau of Economic Research, Inc.
    8. Steven F. Venti & David A. Wise, 1986. "IRAs and Saving," NBER Working Papers 1879, National Bureau of Economic Research, Inc.
      • Steven F. Venti & David A. Wise, 1987. "IRAs and Saving," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 7-52 National Bureau of Economic Research, Inc.
    9. Lawrence H. Summers, 1985. "Issues in National Savings Policy," NBER Working Papers 1710, National Bureau of Economic Research, Inc.
    10. 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.
    11. Douglas H. Joines & James G. Manegold, 1991. "IRAs and saving: evidence from a panel of taxpayers," Research Working Paper 91-05, Federal Reserve Bank of Kansas City.
    12. Venti, Steven F & Wise, David A, 1990. "Have IRAs Increased U.S. Saving? Evidence from Consumer Expenditure Surveys," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 661-98, August.
    13. Venti, Steven F & Wise, David A, 1986. "Tax-Deferred Accounts, Constrained Choice and Estimation of Individual Saving," Review of Economic Studies, Wiley Blackwell, vol. 53(4), pages 579-601, August.
    14. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
    15. Gale, W.G. & Scholtz, J.K., 1992. "IRAs and household saving," Discussion Paper 1992-44, Tilburg University, Center for Economic Research.
    16. repec:dgr:kubcen:199244 is not listed on IDEAS
    17. Steven F. Venti & David A. Wise, 1992. "Government Policy and Personal Retirement Saving," NBER Chapters, in: Tax Policy and the Economy, Volume 6, pages 1-42 National Bureau of Economic Research, Inc.
    18. Steven F. Venti & David A. Wise, 1991. "The Saving Effect of Tax-deferred Retirement Accounts: Evidence from SIPP," NBER Chapters, in: National Saving and Economic Performance, pages 103-130 National Bureau of Economic Research, Inc.
    19. B. Douglas Bernheim & John B. Shoven, 1988. "Pension Funding and Saving," NBER Chapters, in: Pensions in the U.S. Economy, pages 85-114 National Bureau of Economic Research, Inc.
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