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Effectiveness of tax incentives to boost (retirement) saving: theoretical motivation and empirical evidence

Author

Listed:
  • Orazio Attanasio

    (Institute for Fiscal Studies and Yale University)

  • James Banks

    (Institute for Fiscal Studies and University of Manchester)

  • Matthew Wakefield

    (Institute for Fiscal Studies and University of Bologna)

Abstract

The adequacy of household saving for retirement has become a policy issue all around the world. The UK and US have been in the vanguard of those countries that have tried to encourage retirement saving by providing tax-favoured treatment for particular savings accounts. We consider empirical evidence from these two countries regarding the extent to which funds in some specific tax advantaged accounts (IRAs in the US, TESSAs and ISAs in the UK) represent new savings. Our best interpretation of this evidence is that: only relatively small fractions of these funds can be considered to be "new" saving and so these policies have been an expensive means of encouraging saving; there has been some deadweight loss from the policies associated with "reshuffling" of existing savings. Continuing improvements in data on individual financial behaviour create scope for future empirical analysis of incentives to save, both within the standard economic framework that we explain and exploit, and by considering extensions to and adaptations of it.

Suggested Citation

  • Orazio Attanasio & James Banks & Matthew Wakefield, 2004. "Effectiveness of tax incentives to boost (retirement) saving: theoretical motivation and empirical evidence," IFS Working Papers W04/33, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:04/33
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    File URL: http://www.ifs.org.uk/wps/wp0433.pdf
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    References listed on IDEAS

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    1. Carl Emmerson & Sarah Tanner, 2000. "A note on the tax treatment of private pensions and Individual Savings Accounts," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 65-74, March.
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    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other

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