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Tax-Favored Retirement Accounts: Are they Efficient in Increasing Savings and Growth?

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The paper aims to assess tax-favored retirement accounts in a general-equilibrium overlapping-generations economy with idiosyncratic income risk and borrowing constraints. Our simulations indicate that tax-favored retirement accounts as implemented in many OECD countries will have a significant impact on savings and transitional capital accumulation. In our most preferred specification, the latter will rise by roughly 6%, while about 22% of retirement account contributions are additional savings. While existing generations are worse off, future generations benefit significantly from higher bequests, higher wages, and lower tax burdens. However, since the reform also alters the insurance provision of the tax system, aggregate efficiency effects are mostly either negative or insignificant. Finally, it turns out that withdrawal penalties and tax-exempted accounts have positive growth and distributional implications.
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Keywords: SAVINGS INCENTIVES; STOCHASTIC GENERAL-EQUILIBRIUM MODELS

Document Type: Research Article

Publication date: 01 June 2008

More about this publication?
  • As one of the world's oldest professional journals in public finance, founded in 1884, FinanzArchiv (FA) publishes original work from all fields of public economics which are of interest to an international readership, e.g. taxation, public debt, public goods, public choice, federalism, market failure, social policy, and the welfare state. Special emphasis is on high-quality theoretical and empirical papers on current policy issues.

    FA is a peer-reviewed journal commited to a prompt turnaround of submissions.

    FA is listed in the Social Science Citation Index (SSCI), in Current Contents/Social and Behavioral Sciences, in Econ Lit, in the Journal of Economic Literature, in IDEAS and RePEc and in the International Bibliography of the Social Sciences.

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