National Savings, Economic Welfare, and the Structure of Taxation
This paper develops a perfect foresight general equilibrium simulation model of life cycle savings that may be used to investigate the potential impact of a wide range of government policies on national savings and economic welfare. The model can provide quantitative answers to a number of long-standing questions concerning the government's influence on capital formation. These include the degree of crowding out of private investment by debt financed increases in government expenditure, the differential effect on consumption of temporary versus more permanent tax cuts, the announcement effects of future changes in tax and expenditure policy, and the response to structural changes in the tax system, including both the choice of the tax base and the degree of progressivity. The model tracks the values of all economic variables along the transition path from the initial steady state growth path to the new steady state growth path. Hence, it can be used to compute the exact welfare gains or losses for each age cohort associated with tax reform proposals.
|Date of creation:||Aug 1981|
|Date of revision:|
|Publication status:||published as Auerbach, Alan J. and Kotlikoff, Laurence J. National Savings, Economic Welfare, and the Structure of Taxation." Behavioral Simulation Methods in Tax Policy Analysis, edited by Martin Feldstein. Chicago: University of Chicago Press, (1983), pp. 459-498.|
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- Barro, Robert J, 1974.
"Are Government Bonds Net Wealth?,"
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"The Role of Intergenerational Transfers in Aggregate Capital Accumulation,"
NBER Working Papers
0445, National Bureau of Economic Research, Inc.
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- Kotlikoff, Laurence J, 1979. "Social Security and Equilibrium Capital Intensity," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 233-53, May.
- Christophe Chamley, 1980. "Optimal Intertemporal Taxation and the Public Debt," Cowles Foundation Discussion Papers 554, Cowles Foundation for Research in Economics, Yale University.
- David Lipton & Jeffrey Sachs, 1980. "Accumulation and Growth in a Two-Country Model: A Simulation Approach," NBER Working Papers 0572, National Bureau of Economic Research, Inc.
- Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
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