IDEAS home Printed from https://ideas.repec.org/p/tiu/tiucen/c86518a6-ed50-4765-969e-1a1057a4256e.html
   My bibliography  Save this paper

Non-take-up of Tax-favored Savings Plans : Are Household Portfolios Optimal?

Author

Listed:
  • Alessie, R.J.M.
  • Hochgürtel, S.
  • van Soest, A.H.O.

    (Tilburg University, Center For Economic Research)

Abstract

Since the early nineties, the Dutch tax system allows for a tax-favored form of risk free savings through employer-sponsored savings plans (ESSPs). Under some conditions and up to a certain amount, the contributions to this planare tax-deductible, and the returns as well as the withdrawals are tax-free. This makes these plans extremelyattractive, with real after-tax returns by far exceeding the returns to other financial assets such as risk free savingaccounts or stocks and bonds. It suggests that those who have access to this type of savings should participate inthem, provided they have some financial wealth that they can allocate to their own choice. Moreover, unless liquidfinancial wealth is too small, each household should hold the maximum amount to which the tax incentives apply.In this paper, we analyze household data on participation in ESSPs. For those who have access to the asset, weinvestigate the relationship between the ownership decision, the amount held, substitution of other savings, andbackground characteristics. We find that people who are likely to face binding liquidity constraints less often buyESSPs and, if they buy them, more often use them as a substitute for other savings. Regular smokers often do nothold ESSPs, suggesting that some people in this group do not compose their portfolios optimally. The resultsquestion the assumption of rational financial decision making, which is typically maintained in theoretical as well asempirical work on savings and portfolio choice.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Alessie, R.J.M. & Hochgürtel, S. & van Soest, A.H.O., 2001. "Non-take-up of Tax-favored Savings Plans : Are Household Portfolios Optimal?," Discussion Paper 2001-71, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:c86518a6-ed50-4765-969e-1a1057a4256e
    as

    Download full text from publisher

    File URL: https://pure.uvt.nl/ws/portalfiles/portal/539592/71.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    savings; taxation; household economics;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tiu:tiucen:c86518a6-ed50-4765-969e-1a1057a4256e. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Richard Broekman (email available below). General contact details of provider: http://center.uvt.nl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.