IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/0637.html
   My bibliography  Save this paper

Issues in the Design of Saving and Investment Incentives

Author

Listed:
  • David F. Bradford

Abstract

This paper examines the characteristics of and interactions among measures to effect saving and investment incentives ("S-I incentives")in the context of an income tax system that is inadequately indexed for inflation. Examples are proposals for more rapid depreciation of buildings and equipment and proposals to exempt larger amounts of interest income. SI incentives are classified into "consumption tax" and "direct grant" types, and it is shown that these differ in their influence on portfolio choices, in their sensitivity to inflation and in the design problems they present. Stress is placed on requirements for neutrality with respect to asset durability and portfolio composition. A new result is the derivation of the reduction in interest taxation yielding neutrality in the presence of partial expensing of real investment or equivalent investment incentive.

Suggested Citation

  • David F. Bradford, 1981. "Issues in the Design of Saving and Investment Incentives," NBER Working Papers 0637, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0637
    Note: PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w0637.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Martin Feldstein, 1983. "Inflation, Tax Rules, and Investment: Some Econometric Evidence," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 243-286, National Bureau of Economic Research, Inc.
    2. Solomon Fabricant, 1978. "Accounting For Business Income Under Inflation: Current Issues And Views In The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 24(1), pages 1-24, March.
    3. Aaron, Henry J, 1976. "Inflation and the Income Tax," American Economic Review, American Economic Association, vol. 66(2), pages 193-199, May.
    4. Alan J. Auerbach, 1979. "The Optimal Taxation of Heterogeneous Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 589-612.
    5. Auerbach, Alan J, 1981. "Inflation and the Tax Treatment of Firm Behavior," American Economic Review, American Economic Association, vol. 71(2), pages 419-423, May.
    6. Martin Feldstein, 1979. "Adjusting Depreciation in an Inflationary Economy: Indexing versus Acceleration," NBER Working Papers 0395, National Bureau of Economic Research, Inc.
    7. Roger H. Gordon & Burton G. Malkiel, 1980. "Taxation and Corporation Finance," NBER Working Papers 0576, National Bureau of Economic Research, Inc.
    8. Paul A. Samuelson, 1964. "Tax Deductibility of Economic Depreciation to Insure Invariant Valuations," Journal of Political Economy, University of Chicago Press, vol. 72(6), pages 604-604.
    9. Roger H. Gordon, 1984. "Inflation, Taxation, and Corporate Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(2), pages 313-327.
    10. Malkiel, Burton G, 1979. "The Capital Formation Problem in the United States," Journal of Finance, American Finance Association, vol. 34(2), pages 291-306, May.
    11. Feldstein, Martin S, 1977. "Does the United States Save too Little?," American Economic Review, American Economic Association, vol. 67(1), pages 116-121, February.
    12. Joseph E. Stiglitz, 1980. "On the Almost Neutrality of Inflation: Notes on Taxation and the Welfare Costs of Inflation," NBER Working Papers 0499, National Bureau of Economic Research, Inc.
    13. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 3-27, April.
    14. Mervyn A. King, 1980. "Savings and Taxation," NBER Working Papers 0428, National Bureau of Economic Research, Inc.
    15. Auerbach, Alan J, 1979. "Inflation and the Choice of Asset Life," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 621-638, June.
    16. Auerbach, Alan J, 1981. "A Note on the Efficient Design of Investment Incentives," Economic Journal, Royal Economic Society, vol. 91(361), pages 217-223, March.
    17. Martin Feldstein, 1983. "Inflation, Income Taxes, and the Rate of Interest: A Theoretical Analysis," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 28-43, National Bureau of Economic Research, Inc.
    18. John B. Shoven & Jeremy I. Bulow, 1975. "Inflation Accounting and Nonfinancial Corporate Profits: Physical Assets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(3), pages 557-612.
    19. John B. Shoven & Jeremy I. Bulow, 1976. "Inflation Accounting and Nonfinancial Corporate Profits: Financial Assets and Liabilities," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(1), pages 15-66.
    20. Eisner, Robert, 1977. "Capital Shortage: Myth and Reality," American Economic Review, American Economic Association, vol. 67(1), pages 110-115, February.
    21. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27, National Bureau of Economic Research, Inc.
    22. Eugeive Steuerle, 1982. "Is Income From Capital Subject To Individual Income Taxation?," Public Finance Review, , vol. 10(3), pages 283-303, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:zbw:bofrdp:1990_003 is not listed on IDEAS
    2. David F. Bradford & Kyle Logue, 1998. "The Effects of Tax Law Changes on Property-Casualty Insurance Prices," NBER Chapters, in: The Economics of Property-Casualty Insurance, pages 29-80, National Bureau of Economic Research, Inc.
    3. Sörensen, Peter Birch, 1990. "Tax harmonization in the European community: Problems and prospects," Bank of Finland Research Discussion Papers 3/1990, Bank of Finland.
    4. Sörensen, Peter Birch, 1990. "Tax harmonization in the European community : Problems and prospects," Research Discussion Papers 3/1990, Bank of Finland.
    5. Andrew B. Lyon, 1992. "Tax Neutrality Under Parallel Tax Systems," Public Finance Review, , vol. 20(3), pages 338-358, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alan J. Auerbach & Laurence J. Kotlikoff, 1983. "National Savings, Economic Welfare, and the Structure of Taxation," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 459-498, National Bureau of Economic Research, Inc.
    2. Abel, Andrew B., 1990. "Consumption and investment," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 14, pages 725-778, Elsevier.
    3. Darrel Cohen & Kevin Hassett & R. Glenn Hubbard, 1999. "Inflation and the User Cost of Capital: Does Inflation Still Matter?," NBER Chapters, in: The Costs and Benefits of Price Stability, pages 199-234, National Bureau of Economic Research, Inc.
    4. Charles E. McLure, Jr., 1980. "Taxes, Saving, and Welfare: Theory and Evidence," NBER Working Papers 0504, National Bureau of Economic Research, Inc.
    5. Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    6. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 810-833, December.
    7. Chang Woon Nam & Doina Radulescu & Doina Maria Radulescu, 2004. "Does Debt Maturity Matter for Investment Decisions?," CESifo Working Paper Series 1124, CESifo.
    8. Feldstein, Martin, 1980. "Tax Rules and the Mismanagment of Monetary Policy," American Economic Review, American Economic Association, vol. 70(2), pages 182-186, May.
    9. Martin S. Feldstein & Daniel R. Feenberg, 1983. "Alternative Tax Rules and Personal Saving Incentives: Microeconomic Data and Behavioral Simulations," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 173-210, National Bureau of Economic Research, Inc.
    10. Alan J. Auerbach, 1990. "Public Sector Dynamics," NBER Working Papers 3508, National Bureau of Economic Research, Inc.
    11. Benjamin M. Friedman, 1983. "Managing the U.S. Government Deficit in the 1980s," NBER Working Papers 1209, National Bureau of Economic Research, Inc.
    12. Auerbach, Alan J, 1979. "Inflation and the Choice of Asset Life," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 621-638, June.
    13. Bernheim, B. Douglas, 2002. "Taxation and saving," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249, Elsevier.
    14. Nowotny, Ewald, 1980. "Inflation and Taxation: Reviewing the Macroeconomic Issues," Journal of Economic Literature, American Economic Association, vol. 18(3), pages 1025-1049, September.
    15. Hagen, Kare P. & Kanniainen, Vesa, 1995. "Optimal taxation of intangible capital," European Journal of Political Economy, Elsevier, vol. 11(2), pages 361-378, June.
    16. Joel Slemrod, 1985. "The Impact of Tax Reform on Households," NBER Working Papers 1765, National Bureau of Economic Research, Inc.
    17. Uhlig, H.F.H.V.S. & Yanagawa, N., 1994. "Increasing the Capital Income Tax Leads to Faster Growth," Other publications TiSEM e758dab5-3682-4351-b0e0-0, Tilburg University, School of Economics and Management.
    18. Fullerton, Don & Henderson, Yolanda Kodrzycki, 1985. "Long-run Effects of the Accelerated Cost Recovery System," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 363-372, August.
    19. Scott B. Brown, 1977. "Cyclical fluctuations in the share of corporate profits in national income," International Finance Discussion Papers 108, Board of Governors of the Federal Reserve System (U.S.).
    20. Kotlikoff, Laurence J, 1984. "Taxation and Savings: A Neoclassical Perspective," Journal of Economic Literature, American Economic Association, vol. 22(4), pages 1576-1629, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0637. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.