One of the central questions in macroeconomics for many years has been whether government policy can affect private saving rates, and if so to what extent and through what channels. The question has remained controversial because, as with other macroeconomic questions, experiments to check divergent hypotheses cannot be deliberately performed, so economists must rely upon the often dubious evidence from the limited experiments with which nature and history have endowed us. This paper discusses the results of an exceptionally good natural experiment that has been provided by Canada and the U.S. over the past thirty-five years. After moving in tandem for almost 25 years, American and Canadian private saving rates have diverged dramatically over the last decade. The primary conclusion emerging from our analysis of this phenomenon is that tax policies can have a potent impact on private savings behavior. Differences in tax structures and in the interactions of taxation and inflation appear to be important factors explaining the divergent behavior of the American and Canadian private savings rates. Recognizing the importance of asset revaluations, caused partially but not entirely by tax effects, also helps to explain the different behavior of U.S. and Canadian savings. There may also be a relationship between government deficits and the private savings differential.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
2319.
Length: Date of creation: Apr 1990 Date of revision: Publication status: published as Journal of Monetary Economics, Vol. 20, No. 2, pp. 249-279, (September 1987). Handle: RePEc:nbr:nberwo:2319
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Daniel Feenberg & Jonathan Skinner, 1989.
"Sources of IRA Saving,"
NBER Working Papers
2845, National Bureau of Economic Research, Inc.
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Other versions:
Daniel Feenberg & Jonathan Skinner, 1989.
"Sources of IRA Saving,"
NBER Chapters,
in: Tax Policy and the Economy, Volume 3, pages 25-46
National Bureau of Economic Research, Inc.
[Downloadable!]