How does taxation affect household saving?
My research suggests that taxation significantly influences household saving. Changes in tax rates, particularly on capital income, can alter the after-tax return to saving, which in turn affects the incentive for individuals to save more. For example, policies that make saving more attractive, perhaps through tax-deferred accounts or lower tax rates on investment income, tend to be associated with higher saving rates. It's a complex interaction, and we need to carefully consider various behavioral margins and institutional constraints.
Ask James M. Poterba the follow-up →