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Taxation, Saving and the Rate of Interest

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  • Michael J. Boskin

Abstract

After exploring both the crucial role of the interest elasticity of the saving rate in the analysis of a wide variety of issues in economic - particularly tax - policy and reasons why previous studies of the effect of interest rates on consumption and saving have biased the estimated elasticity toward zero, this study presents new estimates of consumption functions based on aggregate U.S. time series data. The results are striking: a variety of functional forms, estimation methods and definitions of the real after-tax rate of return invariably lead to the conclusion of a substantial interest elasticity of saving.

Suggested Citation

  • Michael J. Boskin, 1976. "Taxation, Saving and the Rate of Interest," NBER Working Papers 0135, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0135
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    1. Shoven, John B. & Whalley, John, 1972. "A general equilibrium calculation of the effects of differential taxation of income from capital in the U.S," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 281-321, November.
    2. Hickman, Bert G & Coen, Robert M & Hurd, Michael D, 1975. "The Hickman-Coen Annual Growth Model: Structural Characteristics and Policy Responses," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(1), pages 20-37, February.
    3. David, Paul A & Scadding, John L, 1974. "Private Savings: Ultrarationality, Aggregation, and "Denison's Law."," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 225-249, Part I, M.
    4. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
    5. Marc Nerlove, 1967. "Recent Empirical Studies of the CES and Related Production Functions," NBER Chapters,in: The Theory and Empirical Analysis of Production, pages 55-136 National Bureau of Economic Research, Inc.
    6. Diamond, Peter A., 1970. "Incidence of an interest income tax," Journal of Economic Theory, Elsevier, vol. 2(3), pages 211-224, September.
    7. 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.
    8. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71, pages 280-280.
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    Cited by:

    1. Philip Cagan & Robert E. Lipsey, 1978. "Bibliography," NBER Chapters,in: The Financial Effects of Inflation, pages 79-82 National Bureau of Economic Research, Inc.
    2. Jerry R. Green, 1977. "Mitigating Demographic Risk Through Social Insurance," NBER Working Papers 0215, National Bureau of Economic Research, Inc.

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