Savings Incentives for Low- and Middle-Income Families

SAVING INCENTIVES FOR LOW- AND MIDDLE-INCOME FAMILIES: EVIDENCE FROM A FIELD EXPERIMENT WITH H&R BLOCK* ESTHER DUFLO WILLIAM GALE JEFFREY LIEBMAN PETER ORSZAG EMMANUEL SAEZ
We analyze a randomized experiment in which 14,000 tax filers in H&R Block offices in St. Louis received matches of zero, 20 percent, or 50 percent of IRA contributions. Take-up rates were 3 percent, 8 percent, and 14 percent, respectively. Among contributors, contributions, excluding the match, averaged $765 in the control group and $1100 in the match groups. Taxpayer responses to similar incentives in the Saver’s Credit are much smaller. Taxpayers did not game the experiment by receiving a match and strategically withdrawing funds. Tax professionals significantly influenced contribution choices. These results suggest that both incentives and information affect behavior.

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

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