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Sources of IRA Saving

Listed author(s):
  • Daniel Feenberg
  • Jonathan Skinner

To address the question of whether IRA5 contribute to capital formation, we use the IRS/University of Michigan taxpayer sample for income tax returns during 1980-84. By matching families across a five-year period, we can estimate the dynamic interactions of IRA purchases and other types of saving, correct for individual differences, and test whether IRA purchases are in part offset by other (net) asset sales. The "reshuffling" hypothesis implies that taxpayers who enroll in IRAs should, over time, experience a drop in net taxable interest and dividend income as their taxable assets (or new loans) are used to purchase IRAs. Conversely, the "new saving" view of IRAs implies that taxable interest and dividend income should be unaffected by IRA purchases. We find little or no evidence which favors the view that IRAs are funded by cashing out existing taxable assets. In fact, individuals who purchased IRAs in each year between 1982-84 increased their asset holdings by more than those who did not purchase IRAs. In one sense, our results strongly confirm the studies by Venti and Wise and Hubbard that IRA saving represents new saving. But shuffling could still occur, albeit on a secondary level: families who are accumulating both taxable assets and IRAs might have accumulated even more taxable assets had IRA5 not been available

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2845.

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Date of creation: Feb 1989
Publication status: published as in Tax Policy and the Economy, vol. 3, MIT Press: 1989, ed. Larry Summers
Handle: RePEc:nbr:nberwo:2845
Note: PE
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  1. Martin S. Feldstein & Daniel R. Feenberg, 1983. "Alternative Tax Rules and Personal Saving Incentives: Microeconomic Data and Behavioral Simulations," NBER Chapters,in: Behavioral Simulation Methods in Tax Policy Analysis, pages 173-210 National Bureau of Economic Research, Inc.
  2. Martin Feldstein, 1983. "Introduction to "Behavioral Simulation Methods in Tax Policy Analysis"," NBER Chapters,in: Behavioral Simulation Methods in Tax Policy Analysis, pages 1-6 National Bureau of Economic Research, Inc.
  3. Martin Feldstein, 1983. "Behavioral Simulation Methods in Tax Policy Analysis," NBER Books, National Bureau of Economic Research, Inc, number feld83-2.
  4. 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.
  5. Carroll, Chris & Summers, Lawrence H., 1987. "Why have private savings rates in the United States and Canada diverged?," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 249-279, September.
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