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The effects of the introduction of tax incentives on retirement savings

Author

Listed:
  • Juan Ayuso

    (Banco de España)

  • Juan F. Jimeno

    (Banco de España
    Centre for Economic Policy Research (CEPR)
    Institute for the Study of Labor (IZA))

  • Ernesto Villanueva

    (Banco de España)

Abstract

This paper uses a Spanish panel of tax returns and another on household expenditure during the period 1985-1991 to examine the incidence of the introduction in 1988 of tax incentives to retirement savings on contributions to pension funds and on savings. We first identify the population cohorts who most used these incentives. Then we use data on the evolution of consumption of these cohorts to find that there is substantial heterogeneity in the response of household saving to tax incentives. Most contributions to pension funds are by older/high income individuals. While the overall amount of new saving we estimate is limited (at most 25 cents per euro contributed on average), saving responses differ substantially across age groups. In particular, we document very small consumption drops among the group of households between 56 and 65 years of age, the group that most actively contributed to the plan, while we find instead a larger decrease in consumption expenditures of the group of households between 46 and 55 years of age.

Suggested Citation

  • Juan Ayuso & Juan F. Jimeno & Ernesto Villanueva, 2007. "The effects of the introduction of tax incentives on retirement savings," Working Papers 0724, Banco de España.
    • Handle: RePEc:bde:wpaper:0724
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    3. Natalia B. Boldyreva & Liudmila G. Reshetnikova & Elena A. Tarkhanova & Zhanna V. Pisarenko & Svetlana A. Kalayda, 2020. "The Impact of Tax Preferences on the Investment Attractiveness of Bonds for Retail Investors: The Case of Russia," JRFM, MDPI, vol. 13(4), pages 1-11, April.
    4. Artur Rutkowski, 2019. "Evaluating an old-age voluntary saving scheme under incomplete rationality," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 55-94.
    5. Elena Smirnova & Igor Okhrimenko & Aleksandra Zakharova, 2024. "Review of Best Practices in Self-Employment Taxation," Public Organization Review, Springer, vol. 24(1), pages 299-314, March.
    6. Maravall, A. & del Rio, A., 2007. "Temporal aggregation, systematic sampling, and the Hodrick-Prescott filter," Computational Statistics & Data Analysis, Elsevier, vol. 52(2), pages 975-998, October.
    7. Robert P. Hagemann, 2012. "Fiscal Consolidation: Part 6. What Are the Best Policy Instruments for Fiscal Consolidation?," OECD Economics Department Working Papers 937, OECD Publishing.
    8. Isabel Argimón & Pablo Hernández de Cos, 2008. "The determinants of budget balances of the regional (Autonomous) governments," Working Papers 0803, Banco de España.
    9. Athiphat Muthitacharoen & Trongwut Burong, 2022. "How do taxpayers respond to tax subsidy for long-term savings? Evidence from Thailand’s tax return data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(3), pages 726-750, June.
    10. Aitor Erce, 2008. "A structural model of sovereign debt issuance: assessing the role of financial factors," Working Papers 0809, Banco de España.
    11. Littlewood, Michael, 2014. "Ageing populations, retirement incomes and public policy: what really matters," MPRA Paper 56232, University Library of Munich, Germany.
    12. International Monetary Fund, 2016. "New Zealand: Selected Issues," IMF Staff Country Reports 2016/040, International Monetary Fund.

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    More about this item

    Keywords

    pension funds; tax incentives; savings;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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