Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block

53 Pages Posted: 13 Dec 2005 Last revised: 2 Feb 2006

See all articles by Esther Duflo

Esther Duflo

Massachusetts Institute of Technology (MIT) - Department of Economics; Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD)

William G. Gale

Brookings Institution

Jeffrey B. Liebman

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Peter R. Orszag

Lazard Asset Management

Emmanuel Saez

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

Abstract

This paper analyzes the effects of a large randomized field experiment carried out with H&R Block, offering matching incentives for IRA contributions at the time of tax preparation. About 14,000 H&R Block clients, across 60 offices in predominantly low- and middle-income neighborhoods in St. Louis, were randomly offered a 20 percent match on IRA contributions, a 50 percent match, or no match (the control group). The evaluation generates two main findings. First, higher match rates significantly raise IRA participation and contributions. Take-up rates were 3 percent for the control group, 8 percent in the 20 percent match group, and 14 percent in the 50 percent match group. Average IRA contributions (including non-contributors, excluding the match) for the 20 percent and 50 percent match groups were 4 and 7 times higher than in the control group, respectively. Second, several additional findings are inconsistent with the full information, rational-saver model. In particular, we find much more modest effects on take-up and amounts contributed from the existing Saver's Credit, which provides an effective match for retirement saving contributions through the tax code; we suspect that the differences may reflect the complexity of the Saver's Credit as enacted, and the way in which its effective match is presented. Taken together, our results suggest that the combination of a clear and understandable match for saving, easily accessible savings vehicles, the opportunity to use part of an income tax refund to save, and professional assistance could generate a significant increase in contributions to retirement accounts, including among middle- and low-income households.

Suggested Citation

Duflo, Esther and Gale, William G. and Liebman, Jeffrey B. and Orszag, Peter R. and Saez, Emmanuel, Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block (October 2005). NBER Working Paper No. w11680. Available at SSRN: https://ssrn.com/abstract=819841

Esther Duflo (Contact Author)

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William G. Gale

Brookings Institution ( email )

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Jeffrey B. Liebman

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Peter R. Orszag

Lazard Asset Management ( email )

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Emmanuel Saez

University of California, Berkeley - Department of Economics ( email )

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