Trends in household saving don’t justify tax incentives to boost saving
Article first published online: 4 JAN 2002
Centre for Economic Policy Research, Centre for Economic Studies, Maison des Sciences de l'Homme 1997
Volume 13, Issue 27, pages 547–583, October 1998
How to Cite
Attanasio, O. and Banks, J. (1998), Trends in household saving don’t justify tax incentives to boost saving. Economic Policy, 13: 547–583. doi: 10.1111/1468-0327.00040
- Issue published online: 4 JAN 2002
- Article first published online: 4 JAN 2002
- Cited By
Despite diverse trends in household saving in OECD countries, many governments are introducing tax incentives designed to boost saving by particular groups. Such schemes have been justified by many trends, including increasing income inequality, ageing populations, and greater cross-border competition. It is dangerous, however, to base policy on what is happening to aggregate household saving alone. First, personal saving should be viewed within a lifecycle context. Saving may look inadequate today, but households may already have made plans to redress this in future. Second, data on aggregate saving conceal significant differences between different household groups. Only disaggregation yields reliable inferences on which policy can be based. In particular, it is impossible to assess the consequences of demographic changes without analysis that distinguishes between different generations.
We reassess household saving by computing the evolution of lifetime profiles of consumption, income and saving of different cohorts over time, and then analyse the effect of demographic and other changes. We find little evidence for the assertion that tax incentives to promote national saving are needed now to stave off a future drought in household saving.