Consumption and Saving Response to a Tax-Subsidized Saving Policy: Evidence from India
56 Pages Posted: 17 Aug 2017 Last revised: 3 Nov 2021
Date Written: November 2, 2021
We investigate the effect of a tax-subsidized saving policy on consumption and savings in India using high-frequency administrative transaction data. Difference-in-differences estimation shows a significant negative consumption response to the policy. 66% of additional voluntary savings through home equity accumulation are funded by a reduction in consumption. Heterogeneity analyses reveal that the amount of claimable tax benefits and liquidity buffers are significant drivers of the negative spending response. These results imply that saving tax incentives increase net private savings.
Keywords: Tax Policy, Consumption, Saving, Debit Cards, Household Finance, Banks, Discretionary Spending, Fiscal Policy
JEL Classification: D12, D14, D91, E21, E51, E62, G21, H27, H31
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