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The influence of decision costs on investments in Individual Savings Accounts

  • Dr Justin van de Ven

    ()

This study considers the efficacy of a tax incentivised savings scheme in context of decision making rigidities. Analysis is based on a classical life-cycle model of savings and investment decisions, augmented with a salience cost over participation in Individual Savings Accounts (ISAs) currently run in the UK. Calibration results indicate that salience costs help to match the model to observed rates of participation in ISAs. The calibrated model suggests that the price effects of ISAs are insufficient to generate appreciable increases in private sector savings, with or without salience costs. In this context, salience costs have an important influence on the distribution of welfare bene?fits that are delivered by the ISAs scheme.

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File URL: http://www.niesr.ac.uk/sites/default/files/publications/dp407_0.pdf
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Paper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number 407.

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Date of creation: Mar 2013
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Handle: RePEc:nsr:niesrd:11252
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