Tax Reform and Target Savings

27 Pages Posted: 21 Sep 1998 Last revised: 10 Oct 2010

See all articles by Andrew A. Samwick

Andrew A. Samwick

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 1998

Abstract

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.

Suggested Citation

Samwick, Andrew A., Tax Reform and Target Savings (July 1998). NBER Working Paper No. w6640. Available at SSRN: https://ssrn.com/abstract=123175

Andrew A. Samwick (Contact Author)

Dartmouth College - Department of Economics ( email )

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HOME PAGE: http://www.dartmouth.edu/~samwick

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