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The After Tax Rate of Return Affects Private Savings

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Lawrence H. Summers

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Abstract

This paper reviews theoretical argumrents and empirical evidence regarding the interest elasticity of savings. It concludes that there are strong theoretical reasons to expect an increase in after tax rates of return to increase private savings. Moreover, the empirical rrethods used in most previous studies are likely to produce underestimates of the interestelasticity of savings. New evidence based on direct estimation of utility function parameters suggests that savings are likely to be highly interest elastic. The paper concludes by noting that too little time has passed to evaluate the effects of the savings incentives contained in recent tax legislation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1351.

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Date of creation: Aug 1984
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Publication status: published as Summers, Lawrence H. "The After Tax Rate of Return Affects Private Savings ." American Economic Review, Vol. 74, No. 2, (May 1984), pp. 249-253.
Handle: RePEc:nbr:nberwo:1351

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mankiw, N Gregory & Rotemberg, Julio J & Summers, Lawrence H, 1985. "Intertemporal Substitution in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 225-51, February. [Downloadable!] (restricted)
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  2. Shapiro, Matthew D., 1984. "The permanent income hypothesis and the real interest rate : Some evidence from panel data," Economics Letters, Elsevier, vol. 14(1), pages 93-100. [Downloadable!] (restricted)
  3. Laurence J. Kotlikoff & Lawrence H. Summers, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S3-27, April. [Downloadable!] (restricted)
  5. Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 71(4), pages 533-44, September. [Downloadable!] (restricted)
  6. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
  7. Alan J. Auerbach & Laurence J. Kotlikoff, 1984. "An Examination of Empirical Tests of Social Security and Savings," NBER Working Papers 0730, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April. [Downloadable!] (restricted)
  9. Seidman, Laurence S, 1983. "Taxes in a Life Cycle Growth Model with Bequests and Inheritances," American Economic Review, American Economic Association, vol. 73(3), pages 437-41, June. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  11. Weber, Warren E, 1975. "Interest Rates, Inflation, and Consumer Expenditures," American Economic Review, American Economic Association, vol. 65(5), pages 843-58, December. [Downloadable!] (restricted)
  12. Lawrence H. Summers, 1982. "Tax Policy, the Rate of Return, and Savings," NBER Working Papers 0995, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jinsoo Hahn, 1994. "What Explains Increases In Korea'S Saving Rates?," International Economic Journal, Korean International Economic Association, vol. 8(1), pages 23-38, April. [Downloadable!] (restricted)
  2. Balassa, Bela, 1989. "The effects of interest rates on savings in developing countries," Policy Research Working Paper Series 56, The World Bank. [Downloadable!]
  3. Wen-Jen Hsieh & Yu Hsing, 1994. "Tests Of Nonlinear Consumption Functions: The Case Of Korea, Taiwan, Thailand And India," International Economic Journal, Korean International Economic Association, vol. 8(2), pages 71-81, June. [Downloadable!] (restricted)
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