PL EN
RESEARCH PAPER
Evaluating an old-age voluntary saving scheme under incomplete rationality
 
 
More details
Hide details
1
FAME | GRAPE
 
 
Submission date: 2019-03-08
 
 
Final revision date: 2019-05-06
 
 
Acceptance date: 2019-07-10
 
 
Publication date: 2019-09-30
 
 
Corresponding author
Artur Rutkowski   

FAME | GRAPE, Mazowiecka 11/14, 00-052, Warszawa, Polska
 
 
GNPJE 2019;299(3):55-94
 
KEYWORDS
JEL CLASSIFICATION CODES
ABSTRACT
We provide an ex ante welfare, fiscal and general macroeconomic evaluation of the voluntary old-age saving scheme recently introduced in Poland and known as Employee Capital Plans. ECPs provide tax redemptions as well as lump-sum transfers with the objective to foster old-age savings. A reduction in capital income tax revenue and a rise in expenditure need to be compensated for through adjustments in other taxes. We employ an overlapping-generations model (OLG) to gauge the plausible magnitude of macroeconomic and welfare effects and to provide insights into the microfoundations of these adjustments. Our OLG model features voluntary participation and innovates relative to the literature by introducing agents with hand-to-mouth preferences. We find a relatively strong crowding-out of private savings. In our preferred specification, roughly PLN 0.08–0.09 of every PLN 1 allocated to ECPs is actually new savings, the rest being displaced from unincentivised private voluntary savings. The plausible values of effective capital growth in ECPs range between 0.03 and 0.42 of PLN 1. ECPs reduce the welfare of fully rational agents unless a sufficiently large annuity is offered. ECPs provide consumption smoothing and interest income to HTM agents.
FUNDING
The support of Narodowe Centrum Nauki (grant no: 2014/15/G/HS4/04638) is gratefully acknowledged.
 
REFERENCES (32)
1.
Attanasio O. P., Weber G. [2010], Consumption and saving: models of intertemporal allocation and their implications for public policy, Journal of Economic Literature, 48 (3): 693–751.
 
2.
Ayuso J., Jimeno J. F., Villanueva E. [2007], The effects of the introduction of tax incentives on retirement savings, Banco de España Research Paper No. WP-0724.
 
3.
Bielecki M., Goraus, K. Hagemejer J., Tyrowicz, J. [2016], Decreasing fertility vs increasing longevity: Raising the retirement age in the context of ageing processes. Economic Modelling, Elsevier, 52: 125–143.
 
4.
Blau F. [2017], The Gender Wage Gap: Extent, Trends, and Explanations, Journal of Economic Literature, American Economic Association, 55 (3): 789–865.
 
5.
Bütler M. [2000], Tax-Benefit Linkages in Pension Systems: A Note, Cahiers de Recherches Economiques du Département d’Econométrie et d’Economie politique (DEEP), 00.20, Université de Lausanne, Faculté des HEC, DEEP.
 
6.
Bütler M. [2001], Neoclassical life-cycle consumption a textbook example, Economic Theory, 17: 209–221.
 
7.
Diamond P. [1965], National Debt in a Neoclassical Growth Model, The American Economic Review, 55 (5): 1126–1150.
 
8.
European Commission [2015], The 2015 Ageing Report: Economic and Budgetary Projections for the 28 EU Member States (2013–2060), European Economy, 3: 1–424.
 
9.
Gale W. G., Scholz J. K. [1994], IRAs and household saving, The American Economic Review: 1233– 1260.
 
10.
Garriga C., Conesa J. [2008], Optimal Fiscal Policy in the Design of Social Security Reforms, International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, 49 (1): 291–318.
 
11.
Hagemejer J., Makarski K., Tyrowicz J. [2015], Small assumptions (can) have a large bearing: evaluating pension system reforms with OLG models. Economic Modelling, Elsevier, 48: 210–221.
 
12.
Hagemejer J., Makarski K., Tyrowicz J. [2017], Analysing the Efficiency of Pension Reform: The Role of the Welfare Effects of Fiscal Closures. Macroeconomic Dynamics, Cambridge University Press, 21 (5): 1205–1234.
 
13.
Harenberg D. [2018], Asset pricing in OLG economies with borrowing constraints and idiosyncratic income risk, SAFE Working Paper, No. 229, Goethe University Frankfurt, SAFE – Sustainable Architecture for Finance in Europe, Frankfurt a. M.
 
14.
Heathcote J., Perri F. [2018], Wealth and volatility, The Review of Economic Studies, 85 (4): 2173– 2213.
 
15.
Hubbard R. G., Skinner J., Zeldes S. P. [1995], Precautionary saving and social insurance, Journal of Political Economy, 103 (2): 360–399.
 
16.
Hurd M. D. [1987], Savings of the elderly and desired bequests, American Economic Review: 298–312.
 
17.
Kalmijn M. [1994], Assortative Mating by Cultural and Economic Occupational Status 100 (2), American Journal of Sociology: 422–452.
 
18.
Kaplan G., Violante G., Weidner J. [2014], The wealthy hand-to-mouth, Brookings Papers on Economic Activity, Spring: 77–138.
 
19.
Kitao S. [2014], Sustainable Social Security: Four Options, Review of Economic Dynamics, 17 (4): 756–779.
 
20.
Krusell P., Smith A. [1998], Income and Wealth Heterogeneity in the Macroeconomy, Journal of Political Economy, 106 (5): 867–896.
 
21.
Lachowska M., Myck M. [2018], The Effect of Public Pension Wealth on Saving and Expenditure, American Economic Journal: Economic Policy, American Economic Association, 10 (3): 284–308.
 
22.
Li Y. [2018], Economic Analysis of Social Security Survivors Insurance, International Economic Review, 59 (4), 2043–2073.
 
23.
Makarski K., Komada O., Tyrowicz J. [2017], Welfare effects of fiscal policy in reforming the pension system, GRAPE Working Papers 11, GRAPE Group for Research in Applied Economics.
 
24.
Makarski K., Tyrowicz J. [2019], On welfare effects of increasing retirement age, Journal of Policy Modelling, DOI: 10.1016/j.jpolmod.2018.11.002.
 
25.
Messacar D. [2018], Crowd-Out, Education, and Employer Contributions to Workplace Pensions: Evidence from Canadian Tax Record, The Review of Economics and Statistics, 100 (4): 648–663.
 
26.
OECD [2017], Pensions at a Glance 2017: OECD and G20 Indicators, OECD Publishing, Paris, http://dx.doi.org/10.1787/pens....
 
27.
Olafsson A., Pagel M. [2018], The Liquid Hand-to-Mouth: Evidence from Personal Finance Management Software, The Review of Financial Studies, vol. 31, no. 11: 4398–4446.
 
28.
Pencavel J. [1998], Assortative Mating by Schooling and the Work Behavior of Wives and Husbands, The American Economic Review 88 (2): 326–329.
 
29.
Poterba J. M., Venti S. F., Wise D. A. [1995], Do 401 (k) contributions crowd out other personal saving? Journal of Public Economics, 58 (1): 1–32.
 
30.
Proebsting C. L., Tesar L., House L. [2017], Austerity in the Aftermath of the Great Recession, National Bureau of Economic Research.
 
31.
Weil P. [1992], Hand-to-mouth consumers and asset prices, European Economic Review, 36 (2–3): 575–583.
 
32.
Yang T.‑T. [2016], The Effect of Workplace Pensions on Household Saving: Evidence from a Natural Experiment in Taiwan, IEAS Working Paper: academic research 16‑A013, Institute of Economics, Academia Sinica, Taipei, Taiwan.
 
eISSN:2300-5238
Journals System - logo
Scroll to top