I. INTRODUCTION Many low- and middle-income American families save little for retirement or for other purposes. Families with income below $40,000 are unlikely to participate in employer-provided pensions or Individual Retirement Arrangements (IRAs) and in 2001 had just $2,200 in median net ﬁnancial wealth outside of retirement accounts.1 Researchers and policy-makers have long considered ways to raise saving among these families. The conventional We thank H&R Block for the collaboration and resources it has devoted to this experiment. We gratefully acknowledge the help and contributions of the H&R Block team led by Bernie Wilson and including Mary Beth Granger, Scott McBride, John McDonald, Andrew Olson, Mitchell Powers, Arijit Roy, Doris Seyl, John Thompson, Kenneth White, and Sabrina Wiewel, as well as the district and ofﬁce managers and the 600 tax professionals who implemented this experiment in St. Louis. We also thank Marc Ferguson (Onesta Software), Yvette Ruiz (YMR), John Marinovich (Group 1), and Laura Bos and Bo Harmon (The Retirement Security Project) for their assistance. We gratefully acknowledge support from the Pew Charitable Trusts, the Sloan Foundation, and NSF Grant SES-0134946. We thank three anonymous referees, the editors Lawrence Katz and Edward Glaeser, Sendhil Mullainathan, Michael Sherraden, Joel Slemrod, and numerous seminar participants for comments and discussions. The views expressed are those of the authors alone and do not necessarily reﬂect the views of H&R Block, any of the funders of this project, or any of the institutions with which the authors are afﬁliated. 1. See Burman et al.  for data on deﬁned contribution pension coverage rates by income group. Calculations from the 2001 Survey of Consumer Finances (SCF) imply that only one-quarter of households with income below $40,000 have deﬁned beneﬁt coverage. Among households with cash income below $40,000, © 2006 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology. The Quarterly Journal of Economics, November 2006
QUARTERLY JOURNAL OF ECONOMICS
government approach to subsidizing saving (through 401(k)s and traditional IRAs) provides tax deductions for contributions and tax deferral on account earnings. This approach has not enticed low- and middle-income families to contribute very much to retirement accounts, in part because the value of tax preferences is modest for families with low marginal income tax rates. In contrast, matching contributions can be provided independently of an individual’s marginal income tax rate and thus could more effectively bolster retirement contributions for low- and middleincome households. Little is known, however, about the effects of matching programs on low- and middle-income families. The Saver’s Credit offers one example of matching contributions (see Gale, Iwry, and Orszag  and Koenig and Harvey ). Enacted in 2001, the credit provides a federal income tax reduction of up to 50 percent of contributions to a 401(k) or IRA. Use of the credit, however, is limited by several factors: the...