James Poterba

James Poterba
Massachusetts Institute of Technology | MIT

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251
Publications
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27,313
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Introduction
Skills and Expertise

Publications

Publications (251)
Article
Full-text available
This paper documents trends over the last two decades in retirement behavior and retirement income choices of participants in TIAA, a large and mature defined contribution plan. From 2000 and 2018, the average age at which TIAA participants stopped contributing to their accounts, which is a lower bound on their retirement age, rose by 1.2 years for...
Article
Full-text available
Inequality in wealth among elderly households, and in particular the prevalence of very low wealth holdings, can be an important consideration in the design of social insurance programs. This paper examines the incidence and determinants of low levels of financial and total wealth using repeated cross-sections of the Health and Retirement Study (HR...
Article
In 1989, 32 percent of US households reported some stock ownership, either directly, through a mutual fund, or through an investment held in a defined contribution retirement plan. Twelve years later, in 2001, more than half of all households – 53 percent – reported some stock ownership. Expansion of equity mutual fund ownership, inside and outside...
Article
Full-text available
This paper examines the correlation between poor health and the evolution of wealth for households in the first nine waves of the Health and Retirement Survey (HRS). It complements previous studies that have enumerating specific financial costs of poor health, such as out of pocket medical expenses or lost earnings. Because poor health can affect w...
Article
We consider assets when individuals were last observed prior to death in the Health and Retirement Study (HRS) and trace assets backwards to the age when these individuals were first observed. For most individuals, assets in the last year observed (LYO) were very similar to assets in the first year observed (FYO). In particular, most of those who w...
Article
This paper explores the relationship between education and the evolution of wealth after retirement. Asset growth following retirement depends in part on health capital and financial capital accumulated prior to retirement, which in turn are strongly related to educational attainment. These “initial conditions” for retirement can have a lingering e...
Article
Social Security benefits are the most important component of the income of a large fraction of older Americans. A significant fraction of persons approach the end of life with few financial assets and no home equity, relying almost entirely on Social Security benefits for support. Whether persons reach late-life with positive non-annuity wealth dep...
Article
Many analysts have considered whether households approaching retirement age have accumulated enough assets to be well prepared for retirement. In this paper, we shift from studying household finances at the start of the retirement period, an ex ante measure of retirement preparation, to studying the asset holdings of households in their last years...
Article
This paper presents evidence on the resources available to households as they enter retirement. It draws heavily on data collected by the Health and Retirement Study. We calculate the "potential additional annuity income" that households could purchase, given their holdings of non-annuitized financial assets at the start of retirement. We also cons...
Article
This paper provides a summary of the conclusions and recommendations of the Mirrlees Review of the UK tax system. The characteristics that a good tax system should possess are described and used to assess the current UK system. A package of reforms for the UK system which will move it closer to the ideal is proposed. Issues related to transition an...
Article
This paper illustrates how different assumptions about household portfolio behavior influence estimates of the amount of individual income tax revenue that would be collected if the interest tax exemption for state and local government bonds was repealed or scaled back. Using data from the 2004 Survey of Consumer Finances, we estimate that federal...
Chapter
This chapter focuses on the accumulation of assets in retirement saving accounts, and the implications of retirement saving for the financial circumstances of those that will be retiring in the future. The implications are profound. This chapter redirects attention from the accumulation phase to the use of accumulated assets in later life. This red...
Article
This paper presents a list of the top 20 articles published in the American Economic Review during its first 100 years. This list was assembled in honor of the AER 's one-hundredth anniversary by a group of distinguished economists at the request of AER 's editor. A brief description accompanies the citations of each article.
Article
How households draw down the balances that they accumulate in retirement saving accounts such as 401(k) plans and Individual Retirement Accounts can have an important effect on the contribution of these accounts to retirement income security. This paper presents evidence on the pattern of withdrawals at different ages. We find a relatively modest r...
Article
The remarkable events in the global economy in the last two years have drawn new attention to the central role that economic institutions and economic policies play in determining the well-being of virtually all participants in modern industrial societies, even those who livelihoods are far removed from the financial sector that was the epicenter o...
Article
This paper examines the correlation between poor health and asset accumulation for households in the first nine waves of the Health and Retirement Survey. Rather than enumerating the specific costs of poor health, such as out of pocket medical expenses or lost earnings, we estimate how the evolution of household assets is related to poor health. We...
Article
A firm's deferred tax position can affect its incentives to lobby for or against tax reform, as well as how the firm is affected by a transition from one tax regime to another. We compile disaggregated deferred tax position data for a sample of large U.S. firms between 1993 and 2004 to analyze the incentives created by these positions and to explor...
Article
We consider the evolution of assets after retirement. We ask whether total assets--including housing equity, personal retirement accounts, and other financial assets--tend to be husbanded for a rainy day and drawn down primarily at the time of precipitating shocks, or whether they are drawn down throughout the retirement period. We focus on the rel...
Article
Full-text available
The goal of the Mirrlees Review has been to identify what makes a good tax system for an open developed economy in the 21st century and to suggest how the UK tax system could be reformed to move in that direction. As an integral part of the Review, this volume brings together thirteen studies of different dimensions of tax design, plus associated c...
Article
Many proposed and actual environmental taxes are taxes on intermediate goods. These goods, such as fossil fuels, are typically tradable, and they are also used in the production of many tradable final goods. How should imports of intermediate and final goods be taxed if the government does not want environmental tax policy to alter the competitive...
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Full-text available
This paper develops the argument that accounting rules make the corporate income tax less salient and less distortionary by obscuring the timing of tax payments. I de-velop and estimate a model of investment where firms maximize a discounted weighted average of after-tax cash flows and accounting profits. The cost of capital, the tax wedge on the r...
Article
We illustrate how equilibrium screening models can be used to evaluate the economic consequences of insurance market regulation. We calibrate and solve a model of the United Kingdom's compulsory annuity market and examine the impact of gender-based pricing restrictions. We find that the endogenous adjustment of annuity contract menus in response to...
Article
This paper explores how alternative assumptions about household portfolio behavior affect estimates of the revenue cost of excluding state and local government interest payments from the federal income tax base. Standard tax expenditure estimates assume that current holders of tax-exempt bonds would replace their holdings of tax-exempt bonds with t...
Article
The mortgage interest deduction, the property tax deduction, the unique treatment of capital gains on owner-occupied homes, and the absence of taxation on imputed rent from owner-occupied homes all influence the effective cost of housing services. They also affect federal income tax revenues and the distribution of income tax liabilities. We draw o...
Article
Capital gain distributions by mutual funds generate tax liability for taxable shareholders, thereby reducing their after-tax returns. Taxable investors who are considering purchasing fund shares around distribution dates have an incentive to delay their purchase until after the distribution, since this will reduce the present value of their tax lia...
Article
Full-text available
This paper proposes an overview of the lessons that have been learned over the last 30 years in the economics literature for the optimal design of household tax and transfer programs, and offers an application to the United Kingdom. We review the tax and transfer system in the United Kingdom and its effects on labour supply. In particular, we inves...
Article
Federal income tax policy affects the cost of homeowner ship for many households. Popular discussions of the favorable tax treatment of owner-occupied housing usually focus on the tax-deductibility of mortgage interest and prop? erty tax payments, as well as the specialized tax rules that affect housing capital gains. Academic discussions, in contr...
Article
As growing numbers of households reach retirement age with assets in personal retirement accounts such as IRAs and 401(k)s, the pattern of withdrawals from these accounts will play an increasingly important role in determining the future course of personal retirement assets. In this paper, we use data from the Health and Retirement Study (HRS) and...
Article
The private pension structure in the United States, once dominated by defined benefit (DB) plans, is currently divided between defined contribution (DC) and DB plans. Wealth accumulation in DC plans depends on the participant's contribution behavior and on financial market returns, while accumulation in DB plans is sensitive to a participant's labo...
Article
The pension landscape in the U.S. has changed dramatically over the past 25 years. Saving through personal retirement accounts has become the principal form of retirement saving. We document the transition from a defined benefit system to a personal account system and show the effect it has had on wealth at retirement. We summarize results from oth...
Article
The rise of 401(k) plans and the decline of defined benefit plans will have an important effect on the wealth of future retirees. Changing demographic structure also will affect the aggregate stock of retirement wealth. We project the stock of assets held in retirement plans and the average retirement saving of retirees through 2040. Our projection...
Article
This paper presents summary information on the before- and the after-tax income distribution in the United States between 1984 and 2004, along with data on effective tax rates on households in various quintiles of the income distribution. It describes two effects of tax policy on income distribution. The first involves the redistributive impact of...
Article
Over the past two and a half decades there has been a fundamental change in saving for retirement in the United States, with a rapid shift from employer-managed defined benefit pensions to defined contribution saving plans that are largely controlled by employees. To understand how this change will affect the well-being of future retirees, we proje...
Article
Saving through private pensions has been an important complement to Social Security in providing for the financial needs of older Americans. In the past twenty five years, however, there has been a dramatic change in private retirement saving. Personal retirement accounts have replaced defined benefit pension plans as the primary means of retiremen...
Article
Full-text available
This paper investigates the importance of deferred tax assets and liabilities for a sample of large U.S. corporations between 1993 and 2004 and documents substantial heterogeneity in the deferred tax positions of different firms. In 2004, 25 firms in a sample of 73 reported net deferred tax assets and 48 reported net deferred tax liabilities. Firms...
Article
Full-text available
A firm's deferred tax position can influence how it is affected by a transition from one tax regime to another. We compile disaggregated deferred tax position data for a sample of large U.S. firms between 1993 and 2004 to explore how these positions might affect firm behavior before and after a pre-announced change in the statutory corporate tax ra...
Article
Demographic change can have an important effect on the stock of assets held in defined benefit pension plans. This paper projects the impact of changes in the age structure of the U.S. population between 2005 and 2040 on the stock of assets held by these plans. It projects the contributions to and withdrawals from these plans. These projections are...
Article
Full-text available
This paper addresses the question how individual saving rates and equity hold-ings vary with income. The joint understanding of the cross section of individuals' total and equity savings is crucial regarding various policy issues. In particular, it is important to understand why lower-income households do not participate in the stock market, which...
Article
This paper proposes a new test for adverse selection in insurance markets based on observable characteristics of insurance buyers that are not used in setting insurance prices. The test rejects the null hypothesis of symmetric information when it is possible to find one or more such %u201Cunused observables%u201D that are correlated both with the c...
Article
Full-text available
There is substantial empirical evidence that top managers at regulated firms have systematically different incentive contracts than those at unregulated ones. At regulated firms, managerial compensation is both lower and less performance sensitive. Less well understood, however, is what shape managerial contracts at regulated firms should take. We...
Article
Full-text available
Variable annuities have been one of the most rapidly growing financial products of the last two decades. Between 1996 and 2004, nominal sales of variable annuities in the U.S. more than doubled, from $51 billion to $130 billion. Variable annuities now account for approximately nearly two thirds of annuity sales. The investment returns associated wi...
Article
This paper examines how different asset allocation strategies over the course of a worker's career affect the distribution of retirement wealth and the expected utility of wealth at retirement. It considers both rules that allocate a constant portfolio fraction to various assets at all ages, as well as "lifecycle" rules that vary the mix of portfol...
Article
Capital gain distributions by open-end mutual funds accelerate the capital gains tax liability of their taxable investors, thereby reducing their after-tax return. Investors can reduce this acceleration by delaying the purchase of fund shares until after capital gain distributions tax place. Tax-exempt investors, including individual investors who...
Article
Steve's Clark Medal citation mentions his path-breaking contributions to the economics of crime and to the political economy of campaign finance. This paper describes Steve's research in each of these areas, as well as his contributions on a range of other topics. It identifies the substantive themes as well as the methodological patterns that run...
Chapter
This chapter evaluates the effect of holding a broadly diversified portfolio of common stocks compared to a portfolio of index bonds on the distribution of 401(k) account balances at retirement using stochastic algorithm. It describes the distribution of wealth outcomes for different investment allocation rules and calculates an expected utility me...
Article
Full-text available
This paper investigates the effects of capital gains and dividend tax rates on excess returns around announcements of dividend increases and ex-dividend days for U.S. cor-porations. We find that, consistent with standard models, the ex-dividend day premium increased from 2002 to 2004 when the dividend tax rate was cut. Consistent with the signallin...
Article
We analyze stock trades made by individuals holding stock in both taxable and tax-deferred accounts. By comparing trades across these two types of accounts, we uncover a capital gains lock-in effect in taxable accounts. The lock-in effect is more pronounced for large stock transactions and for stocks held for at least 12 months. Over shorter horizo...
Chapter
This chapter considers the changes in the magnitude and the composition of saving for retirement over the last two decades. It begins with an analysis of aggregate data on retirement plan contributions before turning to microdata and describing patterns in these data. It documents the changes in aggregate retirement saving over the past twenty-five...
Article
To encourage individuals to save for retirement, federal tax policy provides various tax advantages for investments in self-directed accounts, such as traditional and Roth IRAs, and 401(k) plans. However, the differential tax treatment of these accounts and traditional taxable accounts can make it difficult for individuals to choose where to put th...
Article
Assets in retirement saving plans have become an important component of net worth for many households. While many studies compare household balances in tax-deferred retirement accounts such as 401(k) plans with the financial assets held outside these accounts, these different asset components are not directly comparable. Taxes and in some cases pen...
Article
Between 1990 and 2000, total sales of variable annuities in the U.S. grew from just over $5 billion to nearly $140 billion. These products now account for approximately half of all private market annuity sales. Variable annuities resemble mutual funds, but they qualify for special tax treatment as insurance products because they provide an option t...
Article
Assets in retirement saving plans have become an important component of net worth for many households. While many studies compare household balances in tax-deferred retirement accounts such as 401(k) plans with the financial assets held outside these accounts, these different asset components are not directly comparable. Taxes and in some cases pen...
Article
We use data on the stock trades of a large number of individual investors to study how tax incentives affect the realization of capital gains and losses. We compare investors' realizations in their taxable and tax-deferred accounts, which allows us to identify tax-motivated trading. We reach three conclusions. First, we find a strong lock-in effect...
Article
Current regulations require mutual funds to disclose their portfolio holdings twice yearly. For actively managed funds, disclosure tells the public which assets the manager views as undervalued. If other investors can copy the actively managed funds' investments without affecting asset values, the return on the manager's research is diminished. If...
Article
We use a unique data set of annuities in the United Kingdom to test for adverse selection. We find systematic relationships between ex post mortality and annuity characteristics, such as the timing of payments and the possibility of payments to the annuitant's estate. These patterns are consistent with the presence of asymmetric information. Howeve...
Article
This paper presents new evidence on how corporate payout policy responds to the differential between the tax burden on dividend income and that on accruing capital gains. It describes the construction of weighted average marginal tax rate series for the period since 1929, and it suggests that the enactment of the Job Growth of Taxpayer Relief Recon...
Article
Defined contribution retirement plans expose retirement savers to financial market risks. This paper explores the costs of retirement wealth risk. It begins by describing the holding of company stock in 401(k) plans in the US, an investment choice that yields a poorly diversified retirement portfolio. It then summarises the composition of household...
Article
A number of financial market analysts have argued that the aging of the “Baby Boom ” cohort contributed to the rise U.S. asset values during the 1990s, and that asset prices will decline when this group reaches retirement age and begins to draw down its wealth. Similar arguments concerns arise in other nations that face analogous demographic transi...
Article
This paper examines the impact of the Alternative Minimum Tax on the weighted average marginal tax rates that apply to various components of taxable income. It also considers the impact of several AMT reform proposals on the number of AMT taxpayers, the total revenue collected from the AMT, and the weighted average marginal tax rates that apply to...
Article
The shift from defined benefit to defined contribution plans in the United States has drawn new attention to the effect of participants' asset allocation decisions on their financial resources for retirement. This paper develops a stochastic simulation algorithm to evaluate the effect of holding a broadly diversified portfolio of common stocks, or...
Article
We introduce a new hybrid approach to joint estimation of Value at Risk (VaR) and Expected Shortfall (ES) for high quantiles of return distributions. We investigate the relative performance of VaR and ES models using daily returns for sixteen stock market indices (eight from developed and eight from emerging markets) prior to and during the 2008 fi...
Article
Martin Feldstein is one of the most influential empirical economists of the late twentieth century. In the 1960's, as a research fellow at Oxford University, where he earned a D.Phil. in Economics, he pioneered the empirical analysis of production functions for hospitals and for other health care providers. In the process, he helped to launch the m...
Article
This paper explores the effect of discretion in estate valuation techniques on the effective estate tax burden on different asset classes. For some assets, such as liquid securities, there is relatively little discretion in valuation. For other assets, such as partial interests in closely-held businesses, family limited partnerships, and real asset...
Article
Identification in errors-in-variables regression models was recently extended to wide models classes by S. Schennach (Econometrica, 2007) (S) via use of generalized functions. In this paper the problems of non- and semi- parametric identification in such models are re-examined. Nonparametric identification holds under weaker assumptions than in (S)...
Article
This chapter summarizes the current state of research on how taxation affects household decisions with respect to portfolio structure and asset trading. It discusses long-standing issues, such as the impact of differential taxation of income flows from stocks and bonds on the incentives for households to invest in these assets, and the effect of ca...
Article
This paper examines the evolution of the corporate profit base and the relationship between book income and tax income for U.S. corporations over last two decades. The paper demonstrates that this relationship has broken down over the 1990s and has broken down in a manner that is consistent with increased sheltering activity. The paper traces the g...
Article
The rapid growth of assets in self-directed tax-deferred retirement accounts has generated a new set of financial decisions for many households. In addition to deciding which assets to hold, the traditional choice among bonds, stocks, and other investment classes, households with substantial assets in both taxable and tax-deferred accounts (TDA) mu...
Article
Exchange traded funds (ETFs) are a new variety of mutual fund that first became available in 1993. ETFs have grown rapidly and now hold nearly $80 billion in assets. ETFs are sometimes described as more 'tax efficient' than traditional equity mutual funds, since in recent years, some large ETFs have made smaller distributions of realized and taxabl...
Article
This paper explores adverse selection in the voluntary and compulsory individual annuity markets in the United Kingdom. Two empirical regularities support standard models of adverse selection. First, annuitants are longer-lived than non-annuitants. These mortality differences are more pronounced in the voluntary than in the compulsory annuity marke...
Article
ABSTRACT: This paper presents an overview of recent fiscal history in Colombia, and it projects the future course of fiscal deficits and the debt-to-GDP ratio under several different budgetary scenarios. Our projections, which are based on the macroeconomic and fiscal models developed at the Ministry of Finance and Public Credit, suggest that the c...
Article
Mutual funds must disclose their portfolio holdings to investors semiannually. The costs and benefits of such disclosures are a long-standing subject of debate. For actively managed funds, one cost of disclosure is a potential reduction in the private benefits from research on asset values. Disclosure provides public access to information on the as...
Article
Retirement saving has changed dramatically over the last two decades. There has been a shift from employer-managed defined benefit pensions to defined contribution retirement saving plans that are largely controlled by employees. In 1980, 92 percent of private retirement saving contributions were to employer-based plans and 64 percent of these cont...
Article
This paper investigates how state fiscal institutions such as balanced-budget rules and restrictions on state debt issuance mediate the bond market reaction to state fiscal news. We analyze data on the yields of bonds issued by different states, as reported in the “Chubb Relative Value Survey,” along with data on state budget forecasts for the peri...
Chapter
This chapter presents systematic empirical evidence on the basic patterns of household asset allocation over the life cycle. This information can help to evaluate competing models of household portfolio behavior, and more generally to assess proposals for greater reliance on household choices in retirement preparation. Using multiple waves of the S...
Article
This note deals with the conditional form of the law of large numbers (LLN). Let $T$ be a separable metric space, equipped with a non atomic probability $Q$, and $\mathcal{H}$ the class of Borel subsets $H\subset T$ satisfying $Q(H)>0$. Let $\mathcal{P}$ be any consistent set of finite dimensional distributions indexed by $T$. If $\mathcal{H}_0\sub...

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