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Issues in the Design of Saving and Investment Incentives

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  • David F. Bradford

Abstract

This paper examines the characteristics of and interactions among measures to effect saving and investment incentives ("S-I incentives")in the context of an income tax system that is inadequately indexed for inflation. Examples are proposals for more rapid depreciation of buildings and equipment and proposals to exempt larger amounts of interest income. SI incentives are classified into "consumption tax" and "direct grant" types, and it is shown that these differ in their influence on portfolio choices, in their sensitivity to inflation and in the design problems they present. Stress is placed on requirements for neutrality with respect to asset durability and portfolio composition. A new result is the derivation of the reduction in interest taxation yielding neutrality in the presence of partial expensing of real investment or equivalent investment incentive.

Suggested Citation

  • David F. Bradford, 1981. "Issues in the Design of Saving and Investment Incentives," NBER Working Papers 0637, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0637
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    1. repec:zbw:bofrdp:1990_003 is not listed on IDEAS
    2. David F. Bradford & Kyle Logue, 1998. "The Effects of Tax Law Changes on Property-Casualty Insurance Prices," NBER Chapters, in: The Economics of Property-Casualty Insurance, pages 29-80, National Bureau of Economic Research, Inc.
    3. Sörensen, Peter Birch, 1990. "Tax harmonization in the European community: Problems and prospects," Bank of Finland Research Discussion Papers 3/1990, Bank of Finland.
    4. Sörensen, Peter Birch, 1990. "Tax harmonization in the European community : Problems and prospects," Research Discussion Papers 3/1990, Bank of Finland.
    5. Andrew B. Lyon, 1992. "Tax Neutrality Under Parallel Tax Systems," Public Finance Review, , vol. 20(3), pages 338-358, July.

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