South By North Strategies, Ltd.

Economix blogs about new research that calls into question the effectiveness of tax breaks aimed at encouraging retirement savings.

In studying the tax data, the Danish and American researchers identified two main types of savers. About 85 percent of Danes were “passive” savers, who tended to be less responsive to government policies and less wealthy. The remaining 15 percent were “active” savers, who were more responsive and richer.
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When the government reduced a tax break for retirement savings, passive savers barely changed their behavior. By contrast, automatic savings programs had more impact on them, causing the passive savers to put away more money for retirement, said Mr. Chetty, who recently won a so-called genius grant from the MacArthur Foundation.
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Active savers also responded to tax breaks that change — but by shifting money between accounts that come with tax advantages and other accounts, not by changing the amount they put away. The automatic savings programs also had little effect on active savers’ overall balances.