Tax Deferred Savings Plans

John Burbidge

No 2007, Working Papers from University of Waterloo, Department of Economics

Abstract: Governments around the world operate personal income tax systems but most governments go to considerable lengths to mitigate the distortions caused by the interest tax component of the income tax. A popular antidote is the tax deferred savings plan, TDSP, (e.g., RRSP in Canada or 401(k) in the U.S.; see Poterba (1994a)). It is thought that by deferring income taxes on saving, and the interest income on savings, such plans will move the income tax system closer to the more efficient consumption tax. I argue that whether or not TDSPs in fact move income tax systems away from or closer to a consumption tax depends on whether or not interest on debts incurred to make TDSP contributions is deductible for income tax purposes. If people optimize as assumed in simple life-cycle models then it may be that governments can convert a nonlinear income tax system to a proportional consumption tax system by permitting unlimited TDSPs and disallowing the deductibility of debt interest.

Date: 2002-01, Revised 2002-01
References: Add references at CitEc
Citations: View citations in EconPapers (2)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wat:wpaper:02007

Access Statistics for this paper

More papers in Working Papers from University of Waterloo, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sherri Anne Arsenault ().