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CENTER FOR AMERICAN POLITICS AND PUBLIC POLICY OCCASIONAL PAPER SERIES (91-4) IRAs and Household Saving

By William G. Gale and John Karl Scholz

Abstract

This paper examines the effects of Individual Retirement Accounts (IRAs) on household saving using data from the 1983-86 Survey of Consumer Finances. We construct a formal model of dynamic utility maximization that yields closed-form solutions for IRA and other saving. The model is used to illustrate the effects of annual contribution limits and other features of IRAs on non-IRA saving. After estimating the model, we simulate the effect of increasing the contribution limit on the overall level of saving. estimates suggest that only a small portion of increased IRA contributions Our would represent net additions to saving. This result differs from previous research, but is consistent with new evidence we present showing that households vith non-IRA financial assets exceeding $20,000 provided more than two-thirds of all IRA contributions in recent years, indicating great potential among IRA holders to shift taxable forms of saving into IRAs. We gratefully acknowledge the work of Robert Avery and Arthur Kenickel

Year: 1990
OAI identifier: oai:CiteSeerX.psu:10.1.1.194.7877
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