The Effect of Tax-Favored Retirement Accounts on Capital Accumulation
Abstract
In this paper, the authors develop an applied general equilibrium model to examine the effects of tax-favored retirement accounts on the capital stock. The results from their benchmark model indicate that a modest individual retirement account (IRA) contribution limit similar to that in effect during the early 1980s raises the steady-state capital stock by 6.18 percent; approximately 9 percent of IRA contributions constitutes incremental saving. The authors' results lend support to recent suggestions that retirement accounts with favorable tax treatment only for contributions above some base amount might provide more stimulus to saving than conventional IRAs.
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