Macro/Finance Group, NIPFP

Impact of tax breaks on household financial saving in India

Impact of tax breaks on household financial saving in India, Radhika Pandey, Ila Patnaik and Renuka Sane. India Policy Forum 15(1), Pages 138, 2019.

Academic literature on the effectiveness of tax breaks on financial saving in India is scant. This paper, for the first time, presents macro as well as micro evidence on what has been achieved by tax breaks with regards to financial saving. It uses aggregate national accounts data to study how financial savings have evolved with changes in tax breaks. It studies household portfolios for the financial year 201617 using the Consumer Pyramids household survey. It finds that there is no link between tax breaks and overall financial savings. Households that fall in a non-zero tax bracket invest more heavily in the tax-incentivized products. These results have implications for the design of tax policy.

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