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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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  3. 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.).
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  5. Christopher D Carroll, 1997. "Why Do the Rich Save So Much?," Economics Working Paper Archive 388, The Johns Hopkins University,Department of Economics.
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  8. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  9. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
  10. Christopher D. Carroll & Andrew A. Samwick, 1993. "How important is precautionary saving?," Working Paper Series / Economic Activity Section 145, Board of Governors of the Federal Reserve System (U.S.).
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  12. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 73-90, Fall.
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  14. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September.
  15. 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.
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  17. 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.
  18. Laurence J. Kotlikoff & David A. Wise, 1984. "The Incentive Effects of Private Pension Plans," NBER Working Papers 1510, 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, July.
  20. 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.
  21. 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.
  22. 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.
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