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The budgetary and welfare effects of tax-deferred retirement saving accounts

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The budgetary and welfare effects of tax-deferred retirement saving accounts. / Nishiyama, Shinichi.
In: Journal of Public Economics, Vol. 95, No. 11-12, 07.08.2011, p. 1561-1578.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

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Nishiyama S. The budgetary and welfare effects of tax-deferred retirement saving accounts. Journal of Public Economics. 2011 Aug 7;95(11-12):1561-1578. Epub 2011 Aug 7. doi: 10.1016/j.jpubeco.2011.07.010

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Nishiyama, Shinichi. / The budgetary and welfare effects of tax-deferred retirement saving accounts. In: Journal of Public Economics. 2011 ; Vol. 95, No. 11-12. pp. 1561-1578.

Bibtex

@article{776bb6435b704271951aa1067a004d37,
title = "The budgetary and welfare effects of tax-deferred retirement saving accounts",
abstract = "The present paper analyzes the budgetary, macroeconomic, and welfare effects of tax-deferred retirement saving accounts, similar to U.S. 401(k) plans, in a dynamic general-equilibrium overlapping-generations economy with heterogeneous households. Because of the initial deferral of tax payments, the short-run budgetary cost of tax-deferred accounts is significantly higher than the long-run cost. Therefore, the budget neutral introduction of tax-deferred accounts would make current and near-future households worse off, although it would increase national wealth and total output in the long run. If the government spread the short-run cost to future households by increasing debt, the policy change could make all age cohorts, on average, as well off as the economy without tax-deferred accounts. Due to increased government debt and debt service costs, however, national wealth and total output would decrease in the long run. Thus, introducing tax-deferred accounts would not increase national wealth and improve social welfare at the same time. This is partly because the policy change is regressive and reduces the risk sharing effect of the current income tax system.",
keywords = "401(k) plans, IRA, Dynamic general equilibrium, Heterogeneous agents",
author = "Shinichi Nishiyama",
year = "2011",
month = aug,
day = "7",
doi = "10.1016/j.jpubeco.2011.07.010",
language = "English",
volume = "95",
pages = "1561--1578",
journal = "Journal of Public Economics",
issn = "0047-2727",
publisher = "Elsevier",
number = "11-12",

}

RIS

TY - JOUR

T1 - The budgetary and welfare effects of tax-deferred retirement saving accounts

AU - Nishiyama, Shinichi

PY - 2011/8/7

Y1 - 2011/8/7

N2 - The present paper analyzes the budgetary, macroeconomic, and welfare effects of tax-deferred retirement saving accounts, similar to U.S. 401(k) plans, in a dynamic general-equilibrium overlapping-generations economy with heterogeneous households. Because of the initial deferral of tax payments, the short-run budgetary cost of tax-deferred accounts is significantly higher than the long-run cost. Therefore, the budget neutral introduction of tax-deferred accounts would make current and near-future households worse off, although it would increase national wealth and total output in the long run. If the government spread the short-run cost to future households by increasing debt, the policy change could make all age cohorts, on average, as well off as the economy without tax-deferred accounts. Due to increased government debt and debt service costs, however, national wealth and total output would decrease in the long run. Thus, introducing tax-deferred accounts would not increase national wealth and improve social welfare at the same time. This is partly because the policy change is regressive and reduces the risk sharing effect of the current income tax system.

AB - The present paper analyzes the budgetary, macroeconomic, and welfare effects of tax-deferred retirement saving accounts, similar to U.S. 401(k) plans, in a dynamic general-equilibrium overlapping-generations economy with heterogeneous households. Because of the initial deferral of tax payments, the short-run budgetary cost of tax-deferred accounts is significantly higher than the long-run cost. Therefore, the budget neutral introduction of tax-deferred accounts would make current and near-future households worse off, although it would increase national wealth and total output in the long run. If the government spread the short-run cost to future households by increasing debt, the policy change could make all age cohorts, on average, as well off as the economy without tax-deferred accounts. Due to increased government debt and debt service costs, however, national wealth and total output would decrease in the long run. Thus, introducing tax-deferred accounts would not increase national wealth and improve social welfare at the same time. This is partly because the policy change is regressive and reduces the risk sharing effect of the current income tax system.

KW - 401(k) plans

KW - IRA

KW - Dynamic general equilibrium

KW - Heterogeneous agents

U2 - 10.1016/j.jpubeco.2011.07.010

DO - 10.1016/j.jpubeco.2011.07.010

M3 - Journal article

VL - 95

SP - 1561

EP - 1578

JO - Journal of Public Economics

JF - Journal of Public Economics

SN - 0047-2727

IS - 11-12

ER -