TITLE:
Effects of Tax-Based Saving Incentives on Contribution Behavior: Lessons from the Introduction of the Riester Scheme in Germany
AUTHORS:
Swen Kuper, Thomas-Patrick Schmidt
KEYWORDS:
Subsidized Pension, Riester Scheme, Personal Income Tax, Retirement Savings
JOURNAL NAME:
Modern Economy,
Vol.7 No.11,
September
29,
2016
ABSTRACT: This paper analyzes the effects of tax-based saving
incentives on contribution behavior in Germany (Riester Pension). Using tax
reform and inflation, the effect of the tax price on the decision of whether or
not to contribute is analyzed. Our central estimate implies a local average
elasticity of the contribution decision of -2.36. In addition, using shifts in
price kinks over time, we show graphical evidence of the decision on how much
to contribute. Our results show that taxpayers adjust their savings immediately
if the subsidized amount increases. Consequently, the government has control
over the contribution behavior on both margins by setting tax-based saving
incentives.