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Saving Incentives For Low and Middle-Income Families: Evidence From a Field Experiment With H&R Block

November 2006

Esther Duflo, William Gale, Jeffery Liebman, Peter Orzag, Emmanuel Saez


Low and middle income families in the US tend to set aside far too little for retirement, or other savings. Traditional tax breaks for savings have done little to entice these families to set more aside. Many have hypothesized that matching contributions wither in the form of tax credits, or by employers, could induce low income families to save more. However, the saver’s credit, enacted in 2001, has been less successful in doing so than was originally hoped. The researchers worked with HR block to randomize a matching rate across low income tax filers. The effects showed that match rates had a significant effect. At the rate of a 10% match only 3 percent of filers started an IRA savings program, but at a 50% match 14% of filers did so. The effect of these matches was almost 5 times larger than that of the Saver’s Credit, even though the financial benefits would be the same.

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Policy Implications

To induce savings, it is much more effective to be able to have an immediate and concrete result than the delayed gratification of a tax credit. The authors also speculate that the simplicity of the match made it easier for the filers to understand, which in turn made them more likely to take advantage of it. Tax credits are often seen as complicated and intimidating. When creating policy to induce low income people to save, we should err on the side of policies that show an immediate and simple benefit, as they are more likely to be effective in encouraging more people to save, and encouraging those who save to save more.

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