Tax Incentives for Household Saving and Borrowing
Chapter 4
TAX INCENTIVES FOR HOUSEHOLD SAVING AND BORROWING
Tullio Jappelli & Luigi Pistaferri
We thank Patrick Honohan, Alberto Musalem and seminar participants at the World Bank Conference of April 8-9, 2002, for useful comments and Tea Trumbic for research assistance.
Introduction
Modern theories of intertemporal consumption choice emphasize that individuals may save for variety of motives: to smooth life-cycle fluctuations in income (the retirement, or life-cycle motive), to face emergencies arising from income or health risks (the precautionary motive), to purchase durable goods and housing, and to accumulate resources for one 's heir (the bequest motive) (cf. Browning and Lusardi, 1996). Individual choice may be affected by the government policies that, in virtually all countries, target private saving. Government targeting is selective, and tends to affect not only the overall level of saving, but also the allocation of saving among its many different forms. Raising the overall level of saving is often viewed as an effective way to raise investment and growth. Many forms of government intervention thus aim at increasing saving tout court, but leave the ultimate decision about the allocation of saving to the individual. But in other cases government intervention mandates individuals to save in specific forms, or for specific purposes. For instance, in almost all countries governments promote retirement saving, because having insufficient resources during retirement entails a high burden not only for the elderly lacking these resources, but also for the society as a whole. Promoting saving for housing and other goods to which policy makers assign high priority (education, health, or life protection) is also a popular goal. The chapter reviews the literature on these tax incentives, with special focus on long-term saving, housing, and household liabilities. In very poor countries households rely on informal markets for credit transactions, so
TAX INCENTIVES FOR HOUSEHOLD SAVING AND BORROWING
Tullio Jappelli & Luigi Pistaferri
We thank Patrick Honohan, Alberto Musalem and seminar participants at the World Bank Conference of April 8-9, 2002, for useful comments and Tea Trumbic for research assistance.
Introduction
Modern theories of intertemporal consumption choice emphasize that individuals may save for variety of motives: to smooth life-cycle fluctuations in income (the retirement, or life-cycle motive), to face emergencies arising from income or health risks (the precautionary motive), to purchase durable goods and housing, and to accumulate resources for one 's heir (the bequest motive) (cf. Browning and Lusardi, 1996). Individual choice may be affected by the government policies that, in virtually all countries, target private saving. Government targeting is selective, and tends to affect not only the overall level of saving, but also the allocation of saving among its many different forms. Raising the overall level of saving is often viewed as an effective way to raise investment and growth. Many forms of government intervention thus aim at increasing saving tout court, but leave the ultimate decision about the allocation of saving to the individual. But in other cases government intervention mandates individuals to save in specific forms, or for specific purposes. For instance, in almost all countries governments promote retirement saving, because having insufficient resources during retirement entails a high burden not only for the elderly lacking these resources, but also for the society as a whole. Promoting saving for housing and other goods to which policy makers assign high priority (education, health, or life protection) is also a popular goal. The chapter reviews the literature on these tax incentives, with special focus on long-term saving, housing, and household liabilities. In very poor countries households rely on informal markets for credit transactions, so
References: 34 Honohan, Patrick (2000), "Financial Policies and Household Saving," in The Economics of Saving and Growth, Klaus Schmidt-Hebbel and Luis Servén, eds 35 Palacios, Robert and Pallarès-Miralles (2000), "International Patterns of Pension Provision," World Bank, mimeo Yes Source: Poterba (2001). Source: Whitehouse (2000), Holzman et al. (2000).