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Income and saving responses to tax incentives for private retirement savings

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Many governments offer tax concessions for retirement contributions. In this paper, we show that income responses are crucial for understanding their effectiveness in raising retirement savings and alleviating the fiscal pressures of population aging. Using tax register data, we study large changes in caps on tax-favored contributions to individual retirement accounts in Australia. We find that higher caps increase retirement contributions considerably, with around two-thirds of this response financed by increases in earned income. The resulting gain in income tax revenue offsets the fiscal loss from tax concessions, highlighting the importance of taking income and labor supply responses into account.

Publikationsdetails

Marc K. Chan

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Todd Morris

Cain Polidano

Ha Vu

2022
https://doi.org/10.1016/j.jpubeco.2021.104598
Elsevier
206
Journal of Public Economics