Working Paper: NBER ID: w0995
Authors: Lawrence H. Summers
Abstract: The theoretical and empirical results in this paper make a strong prima facie case for the proposition that increases in the after tax rate of return caused by tax policy are likely to bring forth significant increases in saving. Theoretical analysis using a variety of standard models tends to suggest that the aggregate response to savings incentives is likely to be substantial. It is argued that the existing empirical evidence sheds little light on the question. Empirical analyses are then conducted using three alternative approaches. All three confirm the hypothesis of a significant positive response of savings to changes in the rate of return.
Keywords: tax policy; savings; rate of return
JEL Codes: H21; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax policy changes (H29) | after-tax rate of return (H24) |
| after-tax rate of return (H24) | savings (D14) |
| tax policy changes (H29) | savings (D14) |
| after-tax rate of return (H24) | capital accumulation (E22) |
| capital income taxes (E25) | capital accumulation (E22) |
| tax reforms reducing capital income taxes (H24) | savings (D14) |
| heterogeneity among income earners (D31) | capital accumulation (E22) |
| interest elasticity of savings (E21) | savings (D14) |
| intergenerational transfer motives (D15) | long-run elasticity of savings (D15) |