Journal of Economic Perspectives: Vol. 5 No. 2 (Spring 1991)


Quick Tools:

Print Article Summary
Export Citation
Sign up for Email Alerts Follow us on Twitter


JEP - All Issues

Do Individual Retirement Accounts Increase Savings?

Article Citation

Gravelle, Jane G. 1991. "Do Individual Retirement Accounts Increase Savings?" Journal of Economic Perspectives, 5(2): 133-148.

DOI: 10.1257/jep.5.2.133


Do IRAs increase savings or are they merely a windfall for otherwise well-off taxpayers? A major objective of universal IRAs was to encourage saving for retirement. A spirited debate has ensued over the use of IRA tax deductions as a means of promoting private savings. The crucial policy issue is not whether IRA contributions were substantial; they clearly were, representing about 30 percent of personal savings from 1982 to 1986. Rather the important question is the source of IRA contributions. IRAs can be financed out of 1) tax savings themselves; 2) shifting existing assets into IRAs; 3) borrowing; 4) diverting new savings into IRAs; or 5) reducing consumption. The key question is how much of IRA savings comes from reduced consumption. For overall savings to increase, private savings must increase by more than the tax savings. Conventional economic theory and evidence strongly suggests that IRAs were not effective savings incentives. The challenge to this view rests largely on studies which have appealed to a variety of "psychological" factors not normally incorporated in economic analysis. This paper reviews both types of analysis and concludes that the conventional view remains sound. Thus, a dollar devoted to deficit reduction is likely to be a safer bet for increasing savings than a dollar devoted to IRA benefits.

Article Full-Text Access

Full-text Article (Complimentary)


Gravelle, Jane G. (Congressional Research Service)

JEL Classifications

H31: Fiscal Policies and Behavior of Economic Agents: Household
J26: Retirement; Retirement Policies
D12: Consumer Economics: Empirical Analysis


View Comments on This Article (0) | Login to post a comment

Journal of Economic Perspectives

Quick Tools:

Sign up for Email Alerts

Follow us on Twitter

Subscription Information
(Institutional Administrator Access)


JEP - All Issues

Virtual Field Journals

AEA Member Login:

AEAweb | AEA Journals | Contact Us