Effects of public policies on the disposition of pre-retirement lump-sum distributions: Rational and behavioral influences

Leonard E. Burman, Norma B. Coe, Michael Dworsky, William G. Gale

Research output: Contribution to journalReview article

5 Scopus citations

Abstract

We examine workers' disposition of pre-retirement lump-sum distributions, using policy changes in 1986 and 1992 as natural experiments. We find that higher taxes on cash-outs increase rollovers, consistent with both rational and behavioral motives. Several results, however, only make sense in a behavioral framework. Controlling for effective tax rates, structuring the tax as a "penalty" or adding withholding taxes on cash-outs increases rollovers. Allowing employers to unilaterally cash out balances for departing employees alters the impact of other policies. These results suggest that both rational and behavioral factors influence workers' choices, and that policies can interact in important ways.

Original languageEnglish (US)
Pages (from-to)863-888
Number of pages26
JournalNational Tax Journal
Volume65
Issue number4
DOIs
StatePublished - Dec 2012

Keywords

  • Household saving behavior
  • Lump-sum distributions
  • Pre-retirement cash-outs

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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