Rethinking Saving Incentives

Stanford Working Paper #96-009

65 Pages Posted: 10 Dec 1996

See all articles by B. Douglas Bernheim

B. Douglas Bernheim

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 1996

Abstract

This paper undertakes a review of the existing academic work on tax incentives and personal saving. Its central conclusions are as follows. First, the traditional life cycle hypothesis has had an excessive influence on the design and conceptualization of empirical investigations concerning taxation and saving. Second, there is little reason to believe that households increase their saving significantly in response to a generic increase in the after-tax rate of return. Third, the literature on the relation between Individual Retirement Accounts (IRAs) and personal saving is inconclusive. Fourth, one can be moderately confident that, all else equal, eligibility for a 401(k) plan significantly stimulates personal saving. Fifth, tax incentives probably have important effects on personal saving through "third party" or institutional channels. Sixth, there is, overall, considerable uncertainty about the effects of policies designed to promote saving, particularly in cases where these policies have the potential to induce significant institutional change (such as a consumption tax).

JEL Classification: D91, E21, H24

Suggested Citation

Bernheim, B. Douglas, Rethinking Saving Incentives (March 1996). Stanford Working Paper #96-009. Available at SSRN: https://ssrn.com/abstract=1406 or http://dx.doi.org/10.2139/ssrn.1406

B. Douglas Bernheim (Contact Author)

Stanford University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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