Evaluating an old-age voluntary saving scheme under incomplete rationality

Artur Rutkowski ()

Gospodarka Narodowa. The Polish Journal of Economics, 2019, issue 3, 55-94

Abstract: We provide an ex ante welfare, fiscal and general macroeconomic evaluation of the voluntary old-age saving scheme recently introduced in Poland and known as Employee Capital Plans. ECPs provide tax redemptions as well as lump-sum transfers with the objective to foster old-age savings. A reduction in capital income tax revenue and a rise in expenditure need to be compensated for through adjustments in other taxes. We employ an overlapping-generations model (OLG) to gauge the plausible magnitude of macroeconomic and welfare effects and to provide insights into the microfoundations of these adjustments. Our OLG model features voluntary participation and innovates relative to the literature by introducing agents with hand-to-mouth preferences. We find a relatively strong crowding-out of private savings. In our preferred specification, roughly PLN 0.08–0.09 of every PLN 1 allocated to ECPs is actually new savings, the rest being displaced from unincentivised private voluntary savings. The plausible values of effective capital growth in ECPs range between 0.03 and 0.42 of PLN 1. ECPs reduce the welfare of fully rational agents unless a sufficiently large annuity is offered. ECPs provide consumption smoothing and interest income to HTM agents.

Keywords: overlapping generations; ECPs; incomplete rationality (search for similar items in EconPapers)
JEL-codes: C68 D63 E17 E21 H55 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Evaluating an old-age voluntary saving scheme under incomplete rationality (2019)
Working Paper: Evaluating an old-age voluntary saving scheme under incomplete rationality (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:gosnar:y:2019:i:3:p:55-94

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