Working Paper: NBER ID: w5759
Authors: Eric M. Engen; William G. Gale; John Karl Scholz
Abstract: This paper evaluates research examining the effects of tax-based saving incentives on private and national saving. Several" factors make this an unusually difficult problem. First, households that participate in, or are eligible for, saving incentive plans have systematically stronger tastes for saving than other households. Second, the data indicate that households with saving incentives have taken on more debt than other households. Third, significant changes in the 1980s in financial markets, pensions, social security, and nonfinancial assets interacted with the expansion of saving incentives. Fourth, saving incentive accounts represent pre-tax balances, whereas conventional taxable accounts represent post-tax balances. Fifth, the fact that employer contributions to saving incentive plans are a part of total employee compensation is typically ignored. A major theme of this paper is that analyses that ignore these issues overstate the impact of saving incentives on saving. We show that accounting for these factors largely or completely eliminates the estimated positive impact of saving incentives on saving found in the literature. Thus, we conclude that little if any of the overall contributions to existing saving incentives have raised private or national saving. *Portions of this article were published in the JEP, 1996, under title of "The Illusory Effects of Saving Incentives on Saving."
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Saving incentives (J33) | Private saving (D14) |
| Household characteristics (stronger saving preferences) (D14) | Saving behavior (D14) |
| Saving incentives + Changes in financial markets, pensions, and social security (G51) | Effectiveness of saving incentives (D14) |
| Saving incentive accounts (pretax balances) (D14) | Overall saving (E21) |
| Previous literature (ignoring factors) (C29) | Overstatement of positive impact of saving incentives (G51) |