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The Effect of RRSPs on Savings in Canada

Author

Listed:
  • John Burbidge
  • Deborah Fretz
  • Michael R. Veall

Abstract

Do Registered Retirement Savings Plans (RRSPs) increase savings? It is unclear whether they are largely "savings-creating" (i.e. generate new savings) or are largely "savings-diverting" (i.e. the repository for shifted existing assets or for savings that would have been made without the plans). While the increase in Canadian private saving relative to that in the United States in the early seventies is sometimes taken as evidence for the view that RRSPs are savings-creating, we present a number of arguments which reduce confidence in that conclusion. Further microdata studies of similar programs in the United States yield conflicting conclusions. We find that perhaps the best approach attempted in the United States, examining savings before and after a change in program limits, is not likely to be useful in Canada as publicly-available microdata suggest that few taxpayers are constrained by RRSP limits. Given that RRSPs tend largely to benefit higher-income households, the lack of good evidence that they increase savings may influence consideration of such issues as to whether RRSP limits should be increased, although the importance of the RRSP program in providing horizontal equity between members of Registered Pension Plans and nonmembers must be acknowledged.

Suggested Citation

  • John Burbidge & Deborah Fretz & Michael R. Veall, 1997. "The Effect of RRSPs on Savings in Canada," Independence and Economic Security of the Older Population Research Papers 14, McMaster University.
  • Handle: RePEc:mcm:iesopp:14
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    Citations

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    Cited by:

    1. Michael R. Veall, 2001. "Did tax flattening affect RRSP contributions?," Canadian Journal of Economics, Canadian Economics Association, vol. 34(1), pages 120-131, February.
    2. M. Denton & S. French & A. Gafni & A. Joshi & C. Rosenthal & D. Willison, 1998. "Preparations for Independence and Financial Security in Later Life: A Conceptual Framework and Application to Canada," Independence and Economic Security of the Older Population Research Papers 31, McMaster University.
    3. John Burbidge & Deborah Fretz & Michael R. Veall, 1998. "Canadian and American Saving Rates and the Role of RRSPs," Canadian Public Policy, University of Toronto Press, vol. 24(2), pages 259-263, June.

    More about this item

    Keywords

    savings; RRSP;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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