The authors wish to thank Eric Toder, Scott Houser, Gary Englehardt, seminar participants at Indiana University, conference participants at the 2009 Meetings of the Association for Public Policy Analysis and Management and the National Tax Association, and the 2011 Meetings of the Western Economics Association International, the Association for Public Economic Theory, and the International Institute for Public Finance for helpful advice and comments, and Jon Bakija for providing his comprehensive tax calculator. The views expressed are those of the authors and are not necessarily those of the U.S. Department of the Treasury.
TAXES, INCOME, AND RETIREMENT SAVINGS: DIFFERENCES BY PERMANENT AND TRANSITORY INCOME
Article first published online: 5 JUL 2013
Published 2013. This article is a U.S. Government work and is in the public domain in the USA.
Contemporary Economic Policy
How to Cite
HEIM, B. T. and LURIE, I. Z. (2013), TAXES, INCOME, AND RETIREMENT SAVINGS: DIFFERENCES BY PERMANENT AND TRANSITORY INCOME. Contemporary Economic Policy. doi: 10.1111/coep.12030
- Article first published online: 5 JUL 2013
This article examines the determinants of and benefits from saving for retirement in tax-preferred accounts by permanent and transitory income levels. We find that higher incomes (both permanent and transitory) are associated with a greater probability to contribute and larger contributions. We also find that tax benefits for retirement savings increase strongly with income, although the increase is slightly smaller when taxpayers are ranked by their permanent (rather than current) income. In addition, we find that a large portion of the benefits from the Saver's Credit go to taxpayers who would not be eligible based on their permanent income. Finally, we find that recent tax changes (including the introduction of the Saver's Credit) significantly increased contributions among low-income households, although the effect was centered among those with only transitorily low income. (JEL H24, H31, E21)