How Do Tax-Deferred Savings Accounts Affect Savings Behavior? Evidence from Denmark

Raj Chetty, John N. Friedman, Soren Leth-Petersen, Torben H. Nielsen

NBER Retirement Research Center Paper No. NB 10-16
Issued in May 2011

Tax-deferred savings accounts such as IRAs are the major policy tool for increasing savings in the U.S.. Unfortunately, the evidence on the impacts of these accounts on saving is mixed, largely because of the lack of good wealth data on a large population of individuals. In this paper, we use tax data from Denmark that provide accurate measures of wealth for all households in a long panel. We study the impacts of a tax reform in 1999 that significantly altered the tax-advantage of pension contributions on the quantity of pension contributions. In this paper, we demonstrate that this reform had large and statistically significant effects on pension contributions. These results motivate future research to evaluate the aggregate impact of the reform on total savings and wealth accumulation.

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