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Savings and Taxation

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  • Mervyn A. King
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    Abstract

    In section 1.2 we shall examine the optimal taxation of capital and labor incomes in a simple growth model and derive formulae for the optimal tax rates. These are used in section 1.3 to evaluate claims that abolishing capital income taxes would lead to large welfare gains. Inflation is introduced in section 1.4, and alternative approaches to modeling savings behavior are discussed in section 1.5. Finally, we shall look briefly at some of the empirical evidence on the effects of taxes on savings. Our analysis will be highly simplified. We shall ignore many of the issues stressed by the Meade Committee, such as the complex interaction between personal and corporate taxation, the sheer diversity of tax rates currently imposed on different forms of saving, and the portfolio aspects of personal saving. The relationship between expenditure on durables and saving and the effect of social security on consumption will also be left to one side, and we shall say little about the production side of the economy. (For surveys of the effects of taxes on investment, see Helliwell, 1976; King, 1977; and von Furstenberg and Malkiel, 1977.) Despite these omissions the model captures the essential features necessary to an evaluation of the efficiency arguments.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0428.

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    Date of creation: Jan 1980
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    Publication status: published as King, Mervyn A. "Saving and Taxation." Public Policy and the Tax System, edited by G.A. Hughes And G.M. Heal, pp. 1-35. London: George Allen & Unwin, 1980.
    Handle: RePEc:nbr:nberwo:0428

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    Cited by:
    1. Boadway, Robin, 2005. "Income tax reform for a globalized world: The case for a dual income tax," Journal of Asian Economics, Elsevier, vol. 16(6), pages 910-927, December.
    2. Seidman, Laurence S. & Lewis, Kenneth A., 1998. "Conversion to a Consumption Tax in a Growth Model with Heterogeneity," Journal of Macroeconomics, Elsevier, vol. 20(4), pages 665-680, October.
    3. Lansing, Kevin J., 1999. "Optimal redistributive capital taxation in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 73(3), pages 423-453, September.
    4. Charles E. McLure, Jr., 1980. "Taxes, Saving, and Welfare: Theory and Evidence," NBER Working Papers 0504, National Bureau of Economic Research, Inc.
    5. Bovenberg, A.L. & Jacobs, B., 2001. "Redistribution and Education Subsidies are Siamese Twins," Discussion Paper 2001-82, Tilburg University, Center for Economic Research.
    6. Fischer Black, 1981. "When Is a Positive Income Tax Optimal?," NBER Working Papers 0631, National Bureau of Economic Research, Inc.

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