Subsidies vs. Nudges: Which Policies Increase Saving the Most?

Raj ChettyJohn N. FriedmanSoren Leth-PetersenTorben Heien Nielsen Tore Olsen

IB#13-3

The brief’s key findings are:

  • To encourage retirement saving, policymakers use two types of tools: tax subsidies and automatic contributions.
  • Both tools are effective at increasing retirement saving, but such increases could simply be offset by a reduction in a household’s non-retirement saving.
  • A recent study, using Danish data, addresses this issue:
    • A revision in the Danish tax subsidy led to a change in retirement saving, but it was almost fully offset by a change in non-retirement saving.
    • In contrast, automatic contributions boosted retirement saving with only a small impact on non-retirement saving.