THE EFFECT OF TAX-FAVORED RETIREMENT ACCOUNTS ON CAPITAL ACCUMULATION

In this paper we develop an applied general equilibrium model to exami ne the effects of tax-favored retirement accounts on the capital stock . The results from our benchmark model indicate that a modest IRA cont ribution limit similar to that in effect during the early 1980's raise s the steady-state capital stock by 6.18 percent; approximately 9 perc ent of IRA contributions constitutes incremental saving. Our results l end support to recent suggestions that retirement accounts with favora ble tax treatment only for contributions above some base amount might provide more stimulus to saving than conventional IRAs.