The Influence of Decision Costs on Investments in Indivudual Savings Accounts

Justin van de Ven

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: This study considers the efficacy of a tax incentivised savings scheme in context of decision making rigidities. Analysis is based on a classical life-cycle model of savings and investment decisions, augmented with a salience cost over participation in Individual Savings Accounts (ISAs) currently run in the UK. Calibration results indicate that salience costs help to match the model to observed rates of participation in ISAs. The calibrated model suggests that the price effects of ISAs are insufficient to generate appreciable increases in private sector savings, with or without salience costs. In this context, salience costs have an important influence on the distribution of welfare benefits that are delivered by the ISAs scheme.

Keywords: Decision costs; saving; uncertainty; pensions (search for similar items in EconPapers)
JEL-codes: D12 D14 D81 G02 H31 (search for similar items in EconPapers)
Pages: 57pp
Date: 2013-06
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2013n19

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