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Taxes, credit market 'imperfections' and inter-country differences in the household saving ratio

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  • Koskela, Erkki
  • Virén, Matti

Abstract

This paper analyzes aggregate household saving under the capital market imperfection, which is characterized by the wedge between the borrowing rate and the lending rate. Under these circumstances the assumption of a representative household is unlikely to hold and consumers are distributed into savers, liquidity-constrained consumers and borrowers depending on the exogenous future labour income. An interest rate wedge is shown to affect saving positively; as for tax rate, while there are some conflicting tendencies, it will likely affect saving negatively mainly via affecting the post-tax interest rate wedge.

Suggested Citation

  • Koskela, Erkki & Virén, Matti, 1989. "Taxes, credit market 'imperfections' and inter-country differences in the household saving ratio," Bank of Finland Research Discussion Papers 21/1989, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp1989_021
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    References listed on IDEAS

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    1. Thomas Russell, 1977. "Rate of Growth Effects on Aggregate Savings: Further Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(1), pages 153-168.
    2. Kugler, Peter, 1987. "Credit rationing and the adjustment of the loan rate: An empirical investigation," Journal of Macroeconomics, Elsevier, vol. 9(4), pages 505-525.
    3. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
    4. Martin Feldstein, 1980. "International Differences in Social Security and Saving," NBER Chapters, in: Econometric Studies in Public Finance, pages 225-244, National Bureau of Economic Research, Inc.
    5. Koskela, Erkki & Viren, Matti, 1983. "A note on long-term determinants of the private savings ratio," Economics Letters, Elsevier, vol. 11(1-2), pages 107-113.
    6. Hayashi, Fumio & Ito, Takatoshi & Slemrod, Joel, 1988. "Housing finance imperfections, taxation, and private saving: A comparative simulation analysis of the United States and Japan," Journal of the Japanese and International Economies, Elsevier, vol. 2(3), pages 215-238, September.
    7. Novshek, William & Sonnenschein, Hugo, 1979. "Marginal Consumers and Neoclassical Demand Theory," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1368-1376, December.
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    Cited by:

    1. Kerttula, Anne, 1989. "Capital income taxation and household saving," Bank of Finland Research Discussion Papers 29/1989, Bank of Finland.

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