Does front-loading taxation increase savings? Evidence from Roth 401(k) introductions

John Beshears, James Choi, David Laibson and Brigitte Madrian

Journal of Public Economics, 2017, vol. 151, issue C, 84-95

Abstract: Can governments increase private savings by taxing savings up front instead of in retirement? Roth 401(k) contributions are not tax-deductible in the contribution year, but withdrawals in retirement are untaxed. The more common before-tax 401(k) contribution is tax-deductible in the contribution year, but both principal and investment earnings are taxed upon withdrawal. Using administrative data from eleven companies that added a Roth contribution option to their existing 401(k) plan between 2006 and 2010, we find no evidence that total 401(k) contribution rates differ between employees hired before versus after Roth introduction, which implies that take-home pay declines and the amount of retirement consumption being purchased by 401(k) contributions increases after Roth introduction. We reject several neoclassical explanations for our null finding. Results from a survey experiment suggest two behavioral explanations: (1) employee confusion about and neglect of the tax properties of Roth balances and (2) partition dependence.

Keywords: Roth 401(k); Tax salience; Partition dependence (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047272715001553
Full text for ScienceDirect subscribers only

Related works:
Chapter: Does Front-Loading Taxation Increase Savings? Evidence from Roth 401(k) Introductions (2017)
Working Paper: Does Front-Loading Taxation Increase Savings? Evidence from Roth 401(k) Introductions (2014)
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:eee:pubeco:v:151:y:2017:i:c:p:84-95

DOI: 10.1016/j.jpubeco.2015.09.007

Access Statistics for this article

Journal of Public Economics is currently edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().