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Match Rates and Savings: Evidence from Individual Development Accounts

  • Mark Schreiner

    (Washington University in St. Louis)

How do people respond to matched-savings incentives? Studies of 401(k) plans find that matching increases participation but that higher match rates do not increase--and may decrease--the level of savings. This paper analyzes saving by low-income people in Individual Development Accounts (IDAs), a new savings incentive that matches withdrawals if used for home purchase, post-secondary education, or self-employment. The model controls for several sources of bias common in estimates of match-rate effects: unobserved heterogeneity among firms and among participants, censoring of savings at the match cap, and an inverse relationship between match rates and match caps. In IDAs, higher match rates are associated with an increased probability of continued participation but also with a decreased level of savings.

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File URL: http://128.118.178.162/eps/mic/papers/0108/0108003.pdf
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Paper provided by EconWPA in its series Microeconomics with number 0108003.

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Length: 65 pages
Date of creation: 02 Sep 2001
Date of revision: 27 Dec 2001
Handle: RePEc:wpa:wuwpmi:0108003
Note: Type of Document - Adobe Acrobat 3.0; prepared on Windows 98; to print on Adobe Acrobat 3.0; pages: 65 ; figures: Included in pdf file
Contact details of provider: Web page: http://128.118.178.162

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  1. James M. Poterba & Steven F. Venti, 1994. "401(k) Plans and Tax-Deferred Saving," NBER Chapters, in: Studies in the Economics of Aging, pages 105-142 National Bureau of Economic Research, Inc.
  2. William F. Bassett & Michael J. Fleming & Anthony P. Rodrigues, 1998. "How workers use 401(k) plans: the participation, contribution, and withdrawal decisions," Staff Reports 38, Federal Reserve Bank of New York.
  3. B. Douglas Bernheim, 1999. "Taxation and Saving," NBER Working Papers 7061, National Bureau of Economic Research, Inc.
  4. Leslie E. Papke, 1995. "Participation in and Contributions to 401(k) Pension Plans: Evidence from Plan Data," Journal of Human Resources, University of Wisconsin Press, vol. 30(2), pages 311-325.
  5. Patrick J. Bayer & B. Douglas Bernheim & John Karl Scholz, 1996. "The Effects of Financial Education in the Workplace: Evidence from a Survey of Employers," Working Papers 96011, Stanford University, Department of Economics.
  6. Beverly, Sondra G. & Sherraden, Michael, 1999. "Institutional determinants of saving: implications for low-income households and public policy," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 28(4), pages 457-473.
  7. William E. Even & David A. Macpherson, 2004. "Determinants and Effects of Employer Matching Contributions in 401(k) Plans," Labor and Demography 0405001, EconWPA.
  8. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 73-90, Fall.
  9. Moffitt, Robert, 1990. "The Econometrics of Kinked Budget Constraints," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 119-39, Spring.
  10. 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.
  11. Eric M. Engen & William G. Gale, 2000. "The Effects of 401(k) Plans on Household Wealth: Differences Across Earnings Groups," NBER Working Papers 8032, National Bureau of Economic Research, Inc.
  12. Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, vol. 84(2), pages 186-92, May.
  13. Shlomo Maital, 1986. "Prometheus Rebound: On Welfare-Improving Constraints," Eastern Economic Journal, Eastern Economic Association, vol. 12(3), pages 337-344, Jul-Sep.
  14. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," Books, American Enterprise Institute, number 53540, 3.
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