Since 1980, the federal government has directly subsidized one-third of all nonfederal borrowing. This paper presents numerical estimates of the effects of federal lending. Existing credit subsidies appear to have important effects on the allocation of credit, but little effect on aggregate investment. Efficiency costs are shown to be large (approximately 1/3 percent of GNP). Government costs exceed 50 cents per dollar of incremental targeted lending. Interactions among programs can eliminate much or all of the original gain provided by a subsidy, especially if borrowers are rationed. The paper also examines the effects of several policy reforms.

Since 1980, the federal government has directly subsidized one-third of all nonfederal borrowing. This paper presents numerical estimates of the effects of federal lending. Existing credit subsidies appear to have important effects on the allocation of credit, but little effect on aggregate investment. Efficiency costs are shown to be large (approximately 1/3 percent of GNP). Government costs exceed fifty cents per dollar of incremental targeted lending. Interactions among programs can eliminate much or all of the original gain provided by a subsidy, especially if borrowers are rationed. The paper also examines the effects of several policy reforms. Copyright 1991 by American Economic Association.

This paper examines the extent to which households offset pension wealth with reductions in other wealth. Systematic econometric biases imply that the estimated offsets in previous empirical studies are smaller than the true offset and may even have the wrong sign. New empirical estimates that do not correct for the biases generate little offset between pensions and other wealth. Estimates that correct for the biases show substantially more offset (a smaller impact of pensions on overall saving) than in most previous studies. The estimates also indicate that the effects of pensions on wealth vary significantly across households.

The effects of fundamental tax refonn may work through many different avenues, but an important goal is to increase saving. The effect on saving of a switch to a flat-rate consumption tax would be influenced by at least several factors. First, the effect on saving would depend on the magnitude of the tax burden placed on saving in the current system. Second, it would be determined by the response of the rate of return to capital and the sensitivity of saving to changes in its after-tax return. Third, the effect would be contingent upon the redistribution of tax burdens across groups with different propensities to save, including any windfall gains and losses created in the transition to the new system. The uncertainties that households face and the role of precautionary saving are important components for evaluating these issues. These issues are examined using a generalequilibrium, overlapping-generations, stochastic life-cycle simulation model. The existing U.S. tax system is modeled as a progressive tax with a base that is a hybrid between a consumption tax and an income tax. Our simulation results indicate that moving from the existing system to a flat-rate consumption tax would raise the long-term saving rate by approximately I percentage point, and increase GDP by about 1-2 percent in the long run. These results reflect the interaction of several effects. Moving to a consumption-based tax would reduce tax rates on new saving, raising the after-tax return to saving, and would lighten tax burdens on households that save more. These effects would increase saving. But these positive effects on saving would be moderated by several factors. First, the current tax system already taxes a substantial portion of household saving as it would be taxed under a consumption tax. For saving that is tax-preferred in the current system, there is no first-order effect of switching to a consumption-based tax, as it already receives consumption-tax treatment. Second, saving that is done for precautionary reasons is relatively insensitive to the rate of return, so a portion of household saving would be unresponsive to an increase in the after-tax return induced by tax reform. Third, transition rules may eliminate taxes on consumption financed with assets accumulated prior to tax reform. These transition rules would shift some of the tax burden from older cohorts with lower saving propensities to younger cohorts with higher saving propensities, which would further reduce the positive saving effects of switching to a consumption tax.

This paper examines the effects of Individual Retirement Accounts (IRAs) on private and national saving. We construct a formal model of dynamic utility maximization that generates closed-form equations for IRA and other saving. Our empirical estimates indicate that raising the annual IRA contribution limit between 1983 and 1986 would have resulted in little, if any, increase in national saving. Results from sensitivity analysis imply substantially smaller effects on national saving than most previous researchers have estimated. Our results are consistent with new evidence we present indicating considerable potential among IRA holders to shift taxable forms of saving into IRAs.

Charitable Bequests and Taxes on Inheritances and Estates: Aggregate Evidence from across States and Time by Jon M. Bakija, William G. Gale and Joel B. Slemrod. Published in volume 93, issue 2, pages 366-370 of American Economic Review, May 2003