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Tax Reform and Target Savings

Listed author(s):
  • Andrew A. Samwick

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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File URL: http://www.nber.org/papers/w6640.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6640.

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Length:
Date of creation: Jul 1998
Publication status: published as National Tax Journal, Vol. 51 (September 1998): 621-635.
Handle: RePEc:nbr:nberwo:6640
Note: PE
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  19. 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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  21. 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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