The Effect of Tax-Favored Retirement Accounts on Capital Accumulation

Ayşe İmrohoroğlu · Selahattın İmrohoroğlu

85 citations0/0 files storedAmerican Economic Review

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Financial Literacy, Pension, Retirement Analysis Economic and Fiscal Studies Fiscal Policy and Economic Growth

Abstract

In this paper, the authors develop an applied general equilibrium model to examine the effects of tax-favored retirement accounts on the capital stock. The results from their benchmark model indicate that a modest individual retirement account (IRA) contribution limit similar to that in effect during the early 1980s raises the steady-state capital stock by 6.18 percent; approximately 9 percent of IRA contributions constitutes incremental saving. The authors' results lend support to recent suggestions that retirement accounts with favorable tax treatment only for contributions above some base amount might provide more stimulus to saving than conventional IRAs. Copyright 1998 by American Economic Association.

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1989Dynamic Fiscal Policy.1986Theory ahead of business-cycle measurement 1983Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns 1981Intertemporal Substitution in Consumption 1989Saving and Liquidity Constraints 1993The risk-free rate in heterogeneous-agent incomplete-insurance economies 1995Frontiers of Business Cycle Research 1988Dynamic Macroeconomic Theory

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