Front Matter Page
Fiscal Affairs Department
Contents
I. Introduction
1. Saving: does it matter?
2. Saving rates in OECD countries
3. Measuring saving – a problem
II. Factors Affecting Saving
1. Saving and the life cycle hypothesis
2. Saving rates and international capital markets
3. The real rate of return and the saving level
4. Income distribution and saving
5. Corporate saving and total private saving
6. Public and private pensions and the saving level
a. Public pensions
b. Private pensions
7. Saving incentives and the level of saving
a. Deductions for retirement saving
b. Exemption of interest income
c. Interest deductibility on consumer credit
8. Saving and wealth – additional evidence
9. The bequest motive
10. Other factors affecting saving
a. Energy prices
b. Relative affluence of the elderly
c. Availability of consumer credit
d. Cultural considerations
e. Individual proprietors
f. Inflation
g. Work patterns
h. Transitory income
i. Quality of public institutions
j. Improved insurance
k. Stability of tax system
III. Policy Handles
IV. Recent Tax Reform and Saving Incentives
1. Saving and the tax base – a personal consumption tax?
2. General trends in enacted reforms
3. Base-broadening provisions that may discourage saving
4. Reform provisions that may encourage saving
V. Some Conclusions
Text Tables
1. Gross Domestic Savings as a Percentage of GDP in OECD Countries
2. Household and Nonprofit Institution Net Saving Plus Corporate and Quasi-Corporate Net Saving as a Percentage of GDP, 1976–80 and 1981–85
3. Combined Private and Government Net Saving, 1976–80 and 1981–85
4. Saving and Investment as a Percentage of GDP in OECD Countries
5. Maximum Marginal Tax Rates in 1984 and 1990
References
Summary
A declining rate of saving from the 1960s into the 1980s has been an issue of concern in many industrial countries. Several factors affect the level of saving. Policymakers have little control, at least in the short run, over demographic factors and the existing stock of wealth. Nor do they have much influence over cultural factors, including attitudes toward bequests. Other factors, such as the rate of return and the level of social security wealth, may however, be open to policy action. While there is some evidence that encouraging corporate-retained earnings, fully funded private and public pension plans, and other forms of sheltered saving enhance total saving, considerations of efficiency and equity limit the use of these tools.
Government deficits appear to have reduced national saving in a number of countries during the 1980s. Belgium, Canada, Italy, and the United States may be the most obvious examples, but Australia, the Netherlands, Sweden, and the United Kingdom have all had public sector deficits. Many see a reduction in the government deficit as the best way to increase the level of saving. Mixed evidence from the effects of various policy tools on the level of private saving support this view. Although many economists believe that interest policies can be designed to increase private saving, the evidence is not yet convincing.
Given the difficulty of altering the rate of private saving, tax reform has focused on allocating saving and investment more efficiently rather than on directly affecting the level of saving and investment. Although policymakers are aware of the imperfections of income taxation and the much-touted advantages of consumption taxation, they appear to have chosen to improve, rather than replace, the income tax. Reducing income tax rates and relying on sales taxes rather than shifting to a progressive personal expenditure tax has improved intertemporal allocation.