National Savings, Economic Welfare, and the Structure of Taxation

63 Pages Posted: 19 Jun 2004 Last revised: 1 Jul 2010

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Laurence J. Kotlikoff

Boston University - Department of Economics; National Bureau of Economic Research (NBER); Gaidar Institute for Economic Policy

Date Written: August 1981

Abstract

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.

Suggested Citation

Auerbach, Alan Jeffrey and Kotlikoff, Laurence J., National Savings, Economic Welfare, and the Structure of Taxation (August 1981). NBER Working Paper No. w0729. Available at SSRN: https://ssrn.com/abstract=227535

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Laurence J. Kotlikoff

Boston University - Department of Economics ( email )

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Boston, MA 02215
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617-353-4449 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Gaidar Institute for Economic Policy

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Moscow, 125993
Russia

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