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Taxation and Savings - A Neoclassical Perspective

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Laurence J. Kotlikoff

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Abstract

This paper discusses recent neoclassical analyses of taxation and savings.Contrary to the popular view that fiscal policy has highly ambiguous impacts on savings, neoclassical models admit a host of policies with clear and potentially quite powerful affects on the accumulation of wealth.The paper considers four fundamental types of fiscal policies and compares their quantitative affect on savings.The essential elements of these policies involve inter- and intragenerational redistribution, marginal and intra-marginal taxation, and the level of government consumption. Conventional accounting measures of "taxes", "spending", and "deficits" provide, at best, little guide to changes in underlying fiscal instruments and, at worst, precisely opposite indicators of the direction of such changes. Indeed, the continued use of and concern with conventional fiscal measures is symptomatic of wide spread fiscal illusion.These points are developed within the context of certainty models. The paper also considers the role of fiscal policy in both mitigating and exacerbating economic risks facing the private sector. Since precaution is a major motivation for saving, governments can greatly influence wealth accumulation either by using fiscal policy to pool private risks or by making fiscal policy itself highly uncertain.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1302.

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Date of creation: Apr 1985
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Handle: RePEc:nbr:nberwo:1302

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  1. David G. Hartman, 1985. "On the Optimal Taxation of Capital Income in the Open Economy," NBER Working Papers 1550, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. David F. Bradford, 1993. "Market Value Vs. Financial Accounting Measures of National Saving," NBER Working Papers 2906, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Laurence J. Kotlikoff, 1989. "From Deficit Delusion to the Fiscal Balance Rule: Looking For an Economically Meaningful Way to Assess Fiscal Policy," NBER Working Papers 2841, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Ferhan Salman, 2004. "Balancing Turkey’s Intertemporal Budget Gap," Working Papers 0408, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
  5. Rómulo A. Chumacero & Klaus Schmidt-Hebbel, 2004. "General Equilibrium Models: An Overview," Working Papers Central Bank of Chile 307, Central Bank of Chile. [Downloadable!]
  6. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational accounts: a meaningful alternative to deficit accounting," Working Paper 9103, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  7. David F. Bradford, 1987. "A Problem of Financial Market Equilibrium When the Timing of Tax Payments is Indeterminate," NBER Working Papers 1713, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Peter Debaere & Ufuk Demiroglu, 2008. "International Saving, Investment and Trade," Open Economies Review, Springer, vol. 19(5), pages 613-627, November. [Downloadable!] (restricted)
  10. Laurence J. Kotlikoff, 1986. "Is Debt Neutral in the Life Cycle Model?," NBER Working Papers 2053, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. José A. Herce, . "¿Es relevante el trato fiscal diferencial en el volumen de ahorro de los individuos?," Working Papers 2002-20, FEDEA. [Downloadable!]
  12. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational accounting: a new approach for understanding the effects of fiscal policy on saving," Working Paper 9107, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  13. Dominique Hachette, 1998. "Ahorro Privado en Chile," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 35(104), pages 3-48. [Downloadable!]
  14. Lungu, Laurian & Minford, Patrick, 2005. "Explaining The Equity Risk Premium," CEPR Discussion Papers 5017, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  15. Steven F. Venti & David A. Wise, 1987. "Have IRAs Increased U.S. Saving?: Evidence from Consumer Expenditure Surveys," NBER Working Papers 2217, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Parry, Ian, 2001. "How Large are the Welfare Costs of Tax Competition?," Discussion Papers dp-01-28, Resources For the Future. [Downloadable!]
    Other versions:
  17. Laurence Kotlikoff, 1993. "From deficit delusion to the Fiscal Balance Rule: Looking for an economically meaningful way to assess fiscal policy," Journal of Economics, Springer, vol. 7(1), pages 17-41, December. [Downloadable!] (restricted)
  18. R. Glenn Hubbard & Kenneth L. Judd, 1987. "Finite Lifetimes, Borrowing Constraints, and Short-Run Fiscal Policy," NBER Working Papers 2158, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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