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Tax Reform and Target Savings

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  • Andrew A. Samwick

Abstract

If the United States switched to a broad-based consumption tax, than all forms of saving would enjoy the tax-preferred status reserved primarily for retirement saving vehicles under the current income tax system. Because pensions have other unique characteristics besides their tax advantage, current results on the effect of pensions on saving may provide an unreliable guide to the saving response to fundamental tax reform. The net effect of reform on saving depends critically on household motives for saving. This paper documents the considerable variation in the reasons why households save and presents a buffer stock model of saving that allows for both life cycle and target saving. To the extent that specific targets that are not currently tax-favored motivate the saving of households in their preretirement years, fundamental tax reform that results in the elimination of current pension plans will reduce saving.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6640.

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Date of creation: Jul 1998
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Publication status: published as National Tax Journal, Vol. 51 (September 1998): 621-635.
Handle: RePEc:nbr:nberwo:6640

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  1. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 50(1), pages 271-324, June.
  2. Christopher D Carroll, 1990. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," Economics Working Paper Archive 371, The Johns Hopkins University,Department of Economics, revised Aug 1996.
  3. R. Glenn Hubbard & Jonathan S. Skinner, 2009. "Assessing the Effectiveness of Saving Incentives," Books, American Enterprise Institute, number 24067, December.
  4. Christopher D. Carroll & Andrew A. Samwick, 1995. "How Important is Precautionary Saving?," NBER Working Papers 5194, National Bureau of Economic Research, Inc.
  5. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  6. Martin Feldstein, 1992. "College Scholarship Rules and Private Saving," NBER Working Papers 4032, National Bureau of Economic Research, Inc.
  7. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, Econometric Society, vol. 58(1), pages 53-73, January.
  8. Christopher D Carroll, 1997. "Why Do the Rich Save So Much?," Economics Working Paper Archive 388, The Johns Hopkins University,Department of Economics.
  9. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(2), pages 397-444, April.
  10. Zvi Bodie & John B. Shoven & David A. Wise, 1987. "Issues in Pension Economics," NBER Books, National Bureau of Economic Research, Inc, number bodi87-1, January.
  11. Alan L. Gustman & Thomas L. Steinmeier, 1995. "Pension Incentives and Job Mobility," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, W.E. Upjohn Institute for Employment Research, number pijm.
  12. Engelhardt, Gary V, 1996. "Consumption, Down Payments, and Liquidity Constraints," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 28(2), pages 255-71, May.
  13. Chang, Angela E., 1996. "Tax Policy, Lump-Sum Pension Distributions, and Household Saving," National Tax Journal, National Tax Association, vol. 49(2), pages 235-49, June.
  14. John Sabelhaus, 1997. "Public Policy and Saving in the United States and Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 30(2), pages 253-75, May.
  15. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 40(1), pages 41-71, September.
  16. Deaton, A., 1989. "Saving And Liquidity Constraints," Papers, Princeton, Woodrow Wilson School - Public and International Affairs 153, Princeton, Woodrow Wilson School - Public and International Affairs.
  17. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
  18. Laurence J. Kotlikoff & David A. Wise, 1987. "The Incentive Effects of Private Pension Plans," NBER Working Papers 1510, National Bureau of Economic Research, Inc.
  19. Christopher D. Carroll, 1991. "Buffer stock saving and the permanent income hypothesis," Working Paper Series / Economic Activity Section 114, Board of Governors of the Federal Reserve System (U.S.).
  20. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
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Cited by:
  1. Vladimir Nazarov, 2012. "The Future of the Pension System: Parametric Changes or Change of Paradigm?," Working Papers 0047, Gaidar Institute for Economic Policy, revised 2012.
  2. Ashok S. Guha & Brishti Guha, 2008. "Target Saving In An Overlapping Generations Model," Macroeconomics Working Papers 22433, East Asian Bureau of Economic Research.
  3. Brishti Guha & Ashok Guha, 2008. "Utility functions, future consumption targets and subsistence thresholds," Economics Bulletin, AccessEcon, vol. 4(30), pages 1-4.
  4. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers, Oxford University Centre for Business Taxation 0715, Oxford University Centre for Business Taxation.
  5. T. Findley & Frank Caliendo, 2009. "Short horizons, time inconsistency, and optimal social security," International Tax and Public Finance, Springer, vol. 16(4), pages 487-513, August.

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