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Journal of Economic Perspectives: Vol. 10 No. 4 (Fall 1996)

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The Illusory Effects of Saving Incentives on Saving

Article Citation

Engen, Eric M., William G. Gale, and John Karl Scholz. 1996. "The Illusory Effects of Saving Incentives on Saving." Journal of Economic Perspectives, 10(4): 113-138.

DOI: 10.1257/jep.10.4.113

Abstract

The authors evaluate research on how tax-based saving incentives (IRAs and 401(k)s) affect saving. Previous research overstates the impact of the incentives on saving by failing to account for several issues: households with saving incentives have stronger tastes for saving than others; saving incentives have interacted with debt, nonfinancial assets, financial markets, and pensions; and saving incentives represent pretax balances, whereas taxable accounts represent posttax balances. Accounting for these issues essentially eliminates the impact of saving incentives on saving. The authors conclude that little if any of the contributions to existing saving incentives have raised saving.

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Authors

Engen, Eric M. (Federal Reserve System)
Gale, William G. (Brookings Institution)
Scholz, John Karl (U WI)

JEL Classifications

H31: Fiscal Policies and Behavior of Economic Agents: Household
J26: Retirement; Retirement Policies
E21: Macroeconomics: Consumption; Saving; Wealth

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