Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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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 -