Precautionary Saving and the Timing of Taxes

31 Pages Posted: 25 Jun 2004

See all articles by Miles S. Kimball

Miles S. Kimball

University of Michigan at Ann Arbor - Department of Economics; University of Colorado Boulder; Center for Economic and Social Research, USC; National Bureau of Economic Research (NBER)

N. Gregory Mankiw

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1988

Abstract

This paper analyzes the effects of government debt and income taxes on consumption and saving in a world of infinitely-lived households having uncertain and heterogeneous incomes. The special structure of the model allows exact aggregation across households despite incomplete markets. The effects of government debt are shown to be substantial, roughly comparable to those resulting from finite horizons, and crucially dependent on the length of time until the debt is repaid. Also, anticipated changes in taxes are shown to cause anticipated changes in consumption. Finally, an index of fiscal stance is derived.

Suggested Citation

Kimball, Miles S. and Mankiw, N. Gregory, Precautionary Saving and the Timing of Taxes (August 1988). NBER Working Paper No. w2680. Available at SSRN: https://ssrn.com/abstract=439600

Miles S. Kimball (Contact Author)

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N. Gregory Mankiw

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