The Illusory Effects of Saving Incentives on Saving

Eric M Engen, William G Gale and John Karl Scholz ()

Journal of Economic Perspectives, 1996, vol. 10, issue 4, pages 113-38

Abstract: The authors evaluate research on how tax-based saving incentives (IRAs and 401(k)s) affect saving. Previous research overstates the impact of the incentives on saving by failing to account for several issues: households with saving incentives have stronger tastes for saving than others; saving incentives have interacted with debt, nonfinancial assets, financial markets, and pensions; and saving incentives represent pretax balances, whereas taxable accounts represent posttax balances. Accounting for these issues essentially eliminates the impact of saving incentives on saving. The authors conclude that little if any of the contributions to existing saving incentives have raised saving. Copyright 1996 by American Economic Association.

Date: 1996
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