Do Saving Tax Incentives Work? Evidence from Home Equity Accumulation and Consumption Responses

66 Pages Posted: 17 Aug 2017 Last revised: 11 Jan 2025

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Souphala Chomsisengphet

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore

Tianyue Ruan

National University of Singapore (NUS) - Department of Finance

Changcheng Song

University of Florida - Department of Finance, Insurance and Real Estate

Man Zhang

National University of Singapore, Institute of Real Estate and Urban Studies

Date Written: January 11, 2025

Abstract

Using high-frequency administrative transaction data, we study the consumption and savings responses to an unexpected increase in tax incentives for voluntary private savings in India. Difference-in-differences estimation shows a significant negative consumption response to the policy. Our estimates imply that 68% of additional voluntary savings through home equity accumulation are funded by reductions in consumption.  Overall, the saving tax incentives increase net private savings. We quantify our empirical results with a general equilibrium model with both the housing market and the rental market. Counterfactual simulations suggest that a targeted tax subsidy might have a strong general equilibrium effect and reduce welfare.

Keywords: voluntary savings, home equity, consumption, tax deduction, fiscal policy, general equilibrium, housing market, welfare

JEL Classification: C68, D12, D14, D91, E21, E62, H24, H31, R31

Suggested Citation

Agarwal, Sumit and Chomsisengphet, Souphala and Ghosh, Pulak and Ruan, Tianyue and Song, Changcheng and Zhang, Man, Do Saving Tax Incentives Work? Evidence from Home Equity Accumulation and Consumption Responses (January 11, 2025). Available at SSRN: https://ssrn.com/abstract=3020062 or http://dx.doi.org/10.2139/ssrn.3020062

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Souphala Chomsisengphet

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Tianyue Ruan (Contact Author)

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://https://truan.github.io/

Changcheng Song

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Man Zhang

National University of Singapore, Institute of Real Estate and Urban Studies ( email )

3 Research Link #04-02 Innovation 4.0 Singapore
Singapore, 117602
Singapore

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
437
Abstract Views
2,896
Rank
144,392
PlumX Metrics