Abstract
This paper revisits the debate on whether the expansion of the tax-favored saving accounts stimulates savings and helps households become more financially secured for retirement. We build a dynamic general equilibrium model of overlapping generations and find that the policy can have a strong impact on savings, raising the capital stock and output of the economy. The policy effectively reduces the cost of incremental savings at different points of life-cycle when households would otherwise save less. The general equilibrium effect of a rise in the wage and earnings further increases the disposable income and savings. We also study alternative retirement saving policies that provide a credit or a matching contribution to reward savings and quantify their effects on household decisions of life-cycle saving and labor supply and on the aggregate economy.
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