An Empirical Analysis of the Displacement Effect of TFSAs on RRSPs

Leslie Berger (), Jonathan Farrar () and Lu Zhang ()
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Leslie Berger: Wilfrid Laurier University, Waterloo, ON
Jonathan Farrar: Wilfrid Laurier University, Waterloo, ON
Lu Zhang: Ryerson University, Toronto

Canadian Tax Journal, 2019, vol. 67, issue 2, 309-333

Abstract: The tax-free savings account (TFSA), introduced in 2009, was intended by the Canadian government to provide an alternative catchment for savings in addition to registered retirement savings plans (RRSPs). However, little empirical evidence exists regarding the impact of saving in TFSAs on saving in RRSPs. To investigate this issue, we conduct empirical analysis, using data from Statistics Canada's Longitudinal Administrative Databank, which contains annual TFSA and RRSP contributions for a sample of 20 percent of all Canadian taxfilers. We find evidence of a displacement effect of TFSAs on RRSPs: every 1 percent increase in a TFSA contribution reduces an RRSP contribution by approximately 0.4 percent. Our findings have implications for Canadians' ability to self-fund their retirement, as well as for the Canadian government's ability to generate future tax revenues.

Keywords: Tax-free savings account; registered retirement savings plan; TFSA; RRSP; displacement (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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DOI: 10.32721/ctj.2019.67.2.berger

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