The After Tax Rate of Return Affects Private Savings

Lawrence H. Summers

NBER Working Paper No. 1351 (Also Reprint No. r0513)
Issued in August 1984
NBER Program(s):   PE

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.

(119 K)

Published: Summers, Lawrence H. "The After Tax Rate of Return Affects Private Savings ." American Economic Review, Vol. 74, No. 2, (May 1984), pp. 249-253.

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