The Effect of Tax-Deferred Retirement Saving Accounts: A Dynamic General Equilibrium Analysis
The present paper constructs a dynamic general-equilibrium OLG model with heterogeneous households and analyzes the effect of tax-deferred retirement saving accounts. When stylized 401(k)-type accounts are introduced, the government tax revenue decreases by 26% in the short run and by 15% in the long run. If the government finances these costs by a onetime income tax increase with government debt, it has to raise the marginal tax rates by 31% to make the policy change sustainable. National wealth and output will decline by 1.4% and 2.8%, respectively, in the long run, and households of all cohorts will be worse off.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
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