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National Savings, Economic Welfare, and the Structure of Taxation

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  • Alan J. Auerbach
  • Lawrence Kotlikoff

Abstract

This paper develops a perfect foresight general equilibrium simulation model of life cycle savings that may be used to investigate the potential impact of a wide range of government policies on national savings and economic welfare. The model can provide quantitative answers to a number of long-standing questions concerning the government's influence on capital formation. These include the degree of crowding out of private investment by debt financed increases in government expenditure, the differential effect on consumption of temporary versus more permanent tax cuts, the announcement effects of future changes in tax and expenditure policy, and the response to structural changes in the tax system, including both the choice of the tax base and the degree of progressivity. The model tracks the values of all economic variables along the transition path from the initial steady state growth path to the new steady state growth path. Hence, it can be used to compute the exact welfare gains or losses for each age cohort associated with tax reform proposals.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Alan J. Auerbach & Lawrence Kotlikoff, 1980. "National Savings, Economic Welfare, and the Structure of Taxation," Cowles Foundation Discussion Papers 570, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:570
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    References listed on IDEAS

    as
    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
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    6. Alan J. Auerbach, 1979. "The Optimal Taxation of Heterogeneous Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 589-612.
    7. E. S. Phelps & J. G. Riley, 1978. "Rawlsian Growth: Dynamic Programming of Capital and Wealth for Intergeneration "Maximin" Justice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(1), pages 103-120.
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