Debt, Taxes, and the Effects of 401(K) Plans on Household Wealth Accumulation
61 Pages Posted: 12 Nov 1997
Date Written: May 1997
This paper examines interactions between tax-preferred assets and tax-preferred debt, each of which has grown dramatically since 1980. For all households and for homeowners, we find that to the extent that eligibility for 401(k) plans raises households' financial assets, the increase is generally offset by reductions in housing equity and in particular by increases in mortgage debt. For renters, the results are somewhat mixed. Because homeowners hold the vast portion of 401(k) balances, our results indicate that, at best, only a small proportion of 401(k) contributions have represented net increments to saving. The results also suggest that the response to 401(k)s can vary across households and highlight an important interaction between household debt and saving.
JEL Classification: G11, E21
Suggested Citation: Suggested Citation