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Tax-deferred savings plans and interest deductibility

Author

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  • John Burbidge

Abstract

Programs that defer taxes on savings (e.g., RRSPs or 401(k)s) are supposed to move income tax systems closer to the more efficient consumption tax. Whether or not RRSPs move income tax systems away from or closer to a consumption tax depends on whether or not interest on debts incurred to make RRSP contributions is deductible for income tax purposes. If people optimize as assumed in simple life-cycle models, then it may be that governments can convert a non-linear income tax system to a proportional consumption tax system. I argue this is plausible for some Canadian households.

Suggested Citation

  • John Burbidge, 2004. "Tax-deferred savings plans and interest deductibility," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 757-767, August.
    • Handle: RePEc:cje:issued:v:37:y:2004:i:3:p:757-767
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    Citations

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    Cited by:

    1. Huang, Huaxiong & Milevsky, Moshe A., 2016. "Longevity risk and retirement income tax efficiency: A location spending rate puzzle," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 50-62.
    2. Volker Meier & Andreas Wagener, 2015. "Do Mobile Pensioners Threaten the Deferred Taxation of Savings?," CESifo Economic Studies, CESifo Group, vol. 61(2), pages 465-483.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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