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Taxation, Saving and the Rate of Interest

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  • Michael J. Boskin
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    Abstract

    After exploring both the crucial role of the interest elasticity of the saving rate in the analysis of a wide variety of issues in economic - particularly tax - policy and reasons why previous studies of the effect of interest rates on consumption and saving have biased the estimated elasticity toward zero, this study presents new estimates of consumption functions based on aggregate U.S. time series data. The results are striking: a variety of functional forms, estimation methods and definitions of the real after-tax rate of return invariably lead to the conclusion of a substantial interest elasticity of saving.

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    File URL: http://www.nber.org/papers/w0135.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0135.

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    Date of creation: Apr 1976
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    Publication status: published as Journal of Political Economy (April 1978).
    Handle: RePEc:nbr:nberwo:0135

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    1. Marc Nerlove, 1967. "Recent Empirical Studies of the CES and Related Production Functions," NBER Chapters, in: The Theory and Empirical Analysis of Production, pages 55-136 National Bureau of Economic Research, Inc.
    2. Diamond, Peter A., 1970. "Incidence of an interest income tax," Journal of Economic Theory, Elsevier, vol. 2(3), pages 211-224, September.
    3. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 71, pages 280.
    4. Weber, Warren E, 1970. "The Effect of Interest Rates on Aggregate Consumption," American Economic Review, American Economic Association, vol. 60(4), pages 591-600, September.
    5. David, Paul A & Scadding, John L, 1974. "Private Savings: Ultrarationality, Aggregation, and "Denison's Law."," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(2), pages 225-49, Part I, M.
    6. John B. Shoven & John Whalley, 1972. "A General Equilibrium Calculation of the Effects of Differential Taxation of Income from Capital in the U.S," Cowles Foundation Discussion Papers 328, Cowles Foundation for Research in Economics, Yale University.
    7. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
    8. Hickman, Bert G & Coen, Robert M & Hurd, Michael D, 1975. "The Hickman-Coen Annual Growth Model: Structural Characteristics and Policy Responses," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(1), pages 20-37, February.
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    Cited by:
    1. Philip Cagan & Robert E. Lipsey, 1978. "Bibliography," NBER Chapters, in: The Financial Effects of Inflation, pages 79-82 National Bureau of Economic Research, Inc.
    2. Jerry R. Green, 1977. "Mitigating Demographic Risk Through Social Insurance," NBER Working Papers 0215, National Bureau of Economic Research, Inc.

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