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Tax Reform and Target Saving

  • Samwick, Andrew A.

If the United States switched to a broad-based consumption tax, then 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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Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 51 (1998)
Issue (Month): n. 3 (September)
Pages: 621-35

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Handle: RePEc:ntj:journl:v:51:y:1998:i:n._3:p:621-35
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  1. 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.
  2. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," NBER Working Papers 5686, National Bureau of Economic Research, Inc.
  3. Alan L. Gustman & Thomas L. Steinmeier, 1995. "Pension Incentives and Job Mobility," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number pijm, November.
  4. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  5. 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, vol. 50(1), pages 271-324, June.
  6. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  7. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
  8. 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.
  9. Christopher D. Carroll & Andrew A. Samwick, 1998. "How Important Is Precautionary Saving?," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 410-419, August.
  10. Laurence J. Kotlikoff & David A. Wise, 1987. "The Incentive Effects of Private Pension Plans," NBER Chapters, in: Issues in Pension Economics, pages 283-340 National Bureau of Economic Research, Inc.
  11. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September.
  12. Deaton, A., 1989. "Saving And Liquidity Constraints," Papers 153, Princeton, Woodrow Wilson School - Public and International Affairs.
  13. Engelhardt, Gary V, 1996. "Consumption, Down Payments, and Liquidity Constraints," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 255-71, May.
  14. 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.).
  15. Andrew A. Samwick, 1997. "Discount Rate Heterogeneity and Social Security Reform," NBER Working Papers 6219, National Bureau of Economic Research, Inc.
  16. Feldstein, Martin, 1995. "College Scholarship Rules and Private Saving," American Economic Review, American Economic Association, vol. 85(3), pages 552-66, June.
  17. Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 1-55.
  18. Christopher D. Carroll, 1998. "Why Do the Rich Save So Much?," NBER Working Papers 6549, National Bureau of Economic Research, Inc.
  19. Zvi Bodie & John B. Shoven & David A. Wise, 1987. "Issues in Pension Economics," NBER Books, National Bureau of Economic Research, Inc, number bodi87-1, September.
  20. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," Books, American Enterprise Institute, number 53540, October.
  21. 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.
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