The after Tax Rate of Return Affects Private Savings

15 Pages Posted: 8 Mar 2007 Last revised: 12 Sep 2010

See all articles by Lawrence H. Summers

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: May 1984

Abstract

This paper reviews theoretical argumrents and empirical evidence regarding the interest elasticity of savings. It concludes that there are strong theoretical reasons to expect an increase in after tax rates of return to increase private savings. Moreover, the empirical rrethods used in most previous studies are likely to produce underestimates of the interestelasticity of savings. New evidence based on direct estimation of utility function parameters suggests that savings are likely to be highly interest elastic. The paper concludes by noting that too little time has passed to evaluate the effects of the savings incentives contained in recent tax legislation.

Suggested Citation

Summers, Lawrence H., The after Tax Rate of Return Affects Private Savings (May 1984). NBER Working Paper No. w1351. Available at SSRN: https://ssrn.com/abstract=969311

Lawrence H. Summers (Contact Author)

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National Bureau of Economic Research (NBER)

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Harvard University - Harvard Kennedy School (HKS) ( email )

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