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How Much New Saving will KiwiSaver Produce?

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Abstract

After two decades of tax neutrality for private saving, New Zealand policy changed radically with the recent introduction of tax incentives for KiwiSaver. A key issue for tax-favoured saving schemes is the extent to which existing saving is reshuffled versus new saving created by reduced consumption. Using data from a nationwide survey carried out by the authors, we estimate that each dollar of KiwiSaver balances represents only $0.09-$0.19 of new saving. The rest is either reshuffling amongst existing saving and debt by KiwiSaver members, or else taxpayer and employer transfers which reduce national saving elsewhere. Homeowners are least likely to fund their KiwiSaver contributions by reducing spending, indicating possible mis-targeting since owners are often blamed for excessive consumption arising from house price wealth effects. There is little evidence that KiwiSaver affects either the reported trend in saving or the presence of dis-saving. Since only one-tenth of households report negative saving, KiwiSaver may be a costly and ineffective solution to a relatively small problem of insufficient household saving.

Suggested Citation

  • John Gibson & Trinh Le, 2008. "How Much New Saving will KiwiSaver Produce?," Working Papers in Economics 08/03, University of Waikato.
  • Handle: RePEc:wai:econwp:08/03
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    File URL: ftp://wms-webprod1.mngt.waikato.ac.nz/RePEc/wai/econwp/0803.pdf
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. More questioning of the efficacy of Kiwisaver
      by Matt Nolan in TVHE on 2014-02-12 04:00:40

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    Cited by:

    1. Saunders, R.W. & Gross, R.J.K. & Wade, J., 2012. "Can premium tariffs for micro-generation and small scale renewable heat help the fuel poor, and if so, how? Case studies of innovative finance for community energy schemes in the UK," Energy Policy, Elsevier, vol. 42(C), pages 78-88.

    More about this item

    Keywords

    KiwiSaver; retirement saving; substitution effects; tax incentives;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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