Tax-Free Savings Accounts: Who uses them and how?

Adam Lavecchia

No 1802E, Working Papers from University of Ottawa, Department of Economics

Abstract: This paper studies the savings effect of Canadian Tax-Free Savings Account (TFSAs) using microdata from the 2012 Survey of Financial Security. TFSA contributions are made with after-tax income, balances accumulate tax-free and withdrawals do not increase taxable income. The paper makes two important contributions. First, I characterize the profiles of TFSA owners, documenting new patterns in account ownership and balances. The age profile of TFSA ownership is U-shaped and balances are positively correlated with educational attainment and saving in other retirement accounts. Second, I develop a new instrumental variables strategy to estimate whether TFSA balances crowd-out saving in taxable financial assets and saving in traditional tax-deferred plans. The results suggest that TFSA balances crowd-out saving in taxable fixed income assets and have no statistically significant effect on balances in tax-deferred accounts.

Keywords: Tax-preferred savings accounts; pre-paid versus post-paid; Tax-Free Savings Account; crowd-out (search for similar items in EconPapers)
JEL-codes: H2 H31 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2018
New Economics Papers: this item is included in nep-acc, nep-age, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ott:wpaper:1802e

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