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Tax Incentives for Household Saving and Borrowing

The paper reviews the literature on these tax incentives, with special focus on long-term saving, housing, and household liabilities. The paper addresses several areas of policy intervention: (1) the interest rate effect on personal saving; (2) the effect of tax incentives on long-term mandatory saving programs; (3) government programs that target saving for home purchase; (4) government programs that target health and saving for education; (5) the effect of tax incentives to borrow, rather than to save. For each of these five important issues, the paper provides empirical evidence on the main characteristics of government programs, with a special focus on middle-income countries. It also addresses a number of issues that should be of interest to policy-makers. First of all, on which grounds government policy should target some assets rather than others. Second, if tax-sheltered assets and liabilities lead to substitution away from more heavily taxed savings instruments or if they affect the overall level of saving. And finally, if there is any lesson that can be drawn from the experience of developed countries for the design of saving and borrowing incentives in middle-income countries.

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File URL: http://www.csef.it/WP/wp83.pdf
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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 83.

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Date of creation: 01 Jul 2002
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Publication status: Published in Taxation of Financial Intermediation, edited by P. Honohan. Oxford: Oxford University Press, 2003
Handle: RePEc:sef:csefwp:83
Contact details of provider: Postal: I-80126 Napoli
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  1. Alfredo Cuevas & G. A. Mackenzie & Philip R. Gerson, 1997. "Pension Regimes and Saving," IMF Occasional Papers 153, International Monetary Fund.
  2. Souleles, Nicholas S., 2000. "College tuition and household savings and consumption," Journal of Public Economics, Elsevier, vol. 77(2), pages 185-207, August.
  3. Bayoumi, Tamim & Masson, Paul R & Samiei, Hossein, 1996. "International Evidence on the Determinants of Saving," CEPR Discussion Papers 1368, C.E.P.R. Discussion Papers.
  4. Bernheim, B. Douglas, 2002. "Taxation and saving," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249 Elsevier.
  5. De Gregorio, Jose, 1996. "Borrowing constraints, human capital accumulation, and growth," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 49-71, February.
  6. Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers 7682, National Bureau of Economic Research, Inc.
  7. Hochguertel, Stefan & Alessie, Rob & van Soest, Arthur, 1997. " Saving Accounts versus Stocks and Bonds in Household Portfolio Allocation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 81-97, March.
  8. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "Courts: The Lex Mundi Project," Harvard Institute of Economic Research Working Papers 1951, Harvard - Institute of Economic Research.
  9. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers 662, C.E.P.R. Discussion Papers.
  10. Musalem, Alberto R. & Impavido, Gregorio & Tressel, Thierry, 2001. "Contractual savings, capital markets, and firms'financing choices," Policy Research Working Paper Series 2612, The World Bank.
  11. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall.
  12. Luigi Guiso & Tullio Jappelli, 2000. "Household Portfolios in Italy," CSEF Working Papers 43, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  13. Feldstein, Martin, 1995. "College Scholarship Rules and Private Saving," American Economic Review, American Economic Association, vol. 85(3), pages 552-66, June.
  14. Engelhardt, Gary V, 1996. "Tax Subsidies and Household Saving: Evidence from Canada," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1237-68, November.
  15. James M. Poterba, 2001. "Taxation and Portfolio Structure: Issues and Implications," NBER Working Papers 8223, National Bureau of Economic Research, Inc.
  16. Jeanine Bailliu & Helmut Reisen, 1997. "Do Funded Pensions Contribute to Higher Aggregate Savings?: A Cross-Country Analysis," OECD Development Centre Working Papers 130, OECD Publishing.
  17. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "What Drives Private Saving Across the World?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 165-181, May.
  18. Jappelli, Tullio & Pistaferri, Luigi, 2001. "Tax Incentives and the Demand for Life Insurance: Evidence from Italy," CEPR Discussion Papers 2787, C.E.P.R. Discussion Papers.
  19. King, Mervyn A. & Leape, Jonathan I., 1998. "Wealth and portfolio composition: Theory and evidence," Journal of Public Economics, Elsevier, vol. 69(2), pages 155-193, June.
  20. Feldstein, Martin S, 1976. "Personal Taxation and Portfolio Composition: An Econometric Analysis," Econometrica, Econometric Society, vol. 44(4), pages 631-50, July.
  21. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
  22. Holzmann, Robert & Mac Arthur, Ian W. & Sin, Yvonne, 2000. "Pension systems in East Asia and the Pacific : challenges and opportunities," Social Protection Discussion Papers 23088, The World Bank.
  23. Thaler, Richard H & Shefrin, H M, 1981. "An Economic Theory of Self-Control," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 392-406, April.
  24. Marco Cagetti, 2001. "Interest Elasticity in a Life-Cycle Model with Precautionary Savings," American Economic Review, American Economic Association, vol. 91(2), pages 418-421, May.
  25. Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 113-138, Fall.
  26. Poterba, James M. (ed.), 1994. "Public Policies and Household Saving," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226676180, May.
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