Consumption and Saving Response to a Tax-Subsidized Saving Policy: Evidence from India

56 Pages Posted: 17 Aug 2017 Last revised: 3 Nov 2021

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Souphala Chomsisengphet

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

Man Zhang

University of Sydney

Date Written: November 2, 2021

Abstract

We investigate the effect of a tax-subsidized saving policy on consumption and savings in India using high-frequency administrative transaction data. Difference-in-differences estimation shows a significant negative consumption response to the policy. 66% of additional voluntary savings through home equity accumulation are funded by a reduction in consumption. Heterogeneity analyses reveal that the amount of claimable tax benefits and liquidity buffers are significant drivers of the negative spending response. These results imply that saving tax incentives increase net private savings.

Keywords: Tax Policy, Consumption, Saving, Debit Cards, Household Finance, Banks, Discretionary Spending, Fiscal Policy

JEL Classification: D12, D14, D91, E21, E51, E62, G21, H27, H31

Suggested Citation

Agarwal, Sumit and Chomsisengphet, Souphala and Ghosh, Pulak and Ruan, Tianyue and Zhang, Man, Consumption and Saving Response to a Tax-Subsidized Saving Policy: Evidence from India (November 2, 2021). 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

Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)

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/

Man Zhang

University of Sydney ( email )

H69 Codrington Building
Syndey, 2006
Australia

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