How Do Contribution Limits Affect Contributions to Tax-Preferred Savings Accounts? Kevin Milligan ~ Vancouver School of Economics ~ University of British Columbia

How Do Contribution Limits Affect Contributions to Tax-Preferred Savings Accounts?

Journal of Public Economics, Vol. 87, No. 2 (February 2003), pp. 253-281.
Google Scholar entry.

Abstract:

Contributions to tax-preferred savings accounts are typically constrained by a contribution limit. These limits influence contributions not only for taxpayers currently constrained by the contribution limit, but also for those contributing less than the limit. I develop a simple life-cycle model in which consumers exhibit "use-it-or-lose-it" contribution behaviour. This connects current contributions to future contribution limits, and implies that an increase in contribution limits can decrease contributions. Empirical evidence from microdata provides support for the model. Using variation from Canadian limit reforms I find that larger future contribution room is associated with smaller contributions.

Versions:

Published version, February, 2003: DOI.
Online Appendix to published version: PDF.

SEDAP Research Paper No. 27, August, 2000: PDF.


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