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Are Tax-Favoured Savings Plans Effective in Raising Private Savings?

Author

Listed:
  • Ludmila Fadejeva

    (Bank of Latvia)

  • Olegs Tkacevs

    (Bank of Latvia)

Abstract

This study examines the impact of tax-favoured savings on total private savings using data for Latvia contained in HFCS 2014 and 2017. The survey shows that contributions to tax-favoured savings plans are not associated with lower consumer spending and therefore do not contribute to an increase in private savings. Instead, these savings are achieved by lowering other savings. This substitution effect on other savings remains statistically significant even when excluding households with very low consumption levels and the ones whose reference person is relatively young/old and with a low level of education. However, the observed effect is not significant at the very bottom of the distribution of non-favoured savings. Since participation in tax-favoured savings plans is mainly associated with households in the upper income quintile, the results of this study raise concerns that without additional measures to encourage retirement savings, particularly in the lower segment of the savings distribution, income inequality among retirees will continue rising.

Suggested Citation

  • Ludmila Fadejeva & Olegs Tkacevs, 2021. "Are Tax-Favoured Savings Plans Effective in Raising Private Savings?," Discussion Papers 2021/01, Latvijas Banka.
    • Handle: RePEc:ltv:dpaper:202101
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    File URL: https://datnes.latvijasbanka.lv/papers/discussion/DM_1-2021-en.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    tax incentives; saving; private pension funds; HFCS;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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