Issues in the Measurement and Interpretation of Saving and Wealth

Alternative measures of saving are developed and compared to the traditional NIPA estimates. Various data sources and estimation methodologies all conclude that adjustments for net saving in durables, government capital, capital gains and losses, and revaluations are substantial. For example, government capital and durables adjustments raise the NIPA estimate of net national saving in 1985 from 4.7% to 8.8%. New estimates of saving, developed and measured as the change in real net worth based on data from the Federal Reserve Flow of Funds National Balance Sheets, differ substantially from the NIPA estimates. For example, in 1986 and 1987, the NIPA net national saving measure is 1.8% and 1.9%, respectively, whereas my corresponding estimates from FED data are 11.5% and 3.3%. My new estimates of net private saving from FED data average 6.5% for the period 1981-87, versus 11.3% for the 1951-80 period. Net national saving has fallen even further, from an average of 11.2% in 1951-80 to 3.2% in 1981-87. Correspondingly, real private net worth reached 13.4 trillion (in constant 1982 dollars) by 1987, but its rate of growth slowed in the period 1979-87 relative to the postwar average. Various conceptual and measurement issues are discussed. Most important are 1) the appropriate level of aggregation across households of different age and type, sectors of the economy, and types of assets, and 2) improved measures of personal income to include as much currently unrecorded income as possible.

Notes on the Tax Treatment of Human Capital

Section 1 presents a preliminary attempt at clarifying the ways in which taxes affect human capital accumulation. Section 2 outlines a simple general equilibrium model with two capital goods - physical and human – and the saving corresponding to each, to begin to deal with these issues. Once human capital is viewed as an alternative source of wealth and hence human capital investment as a source of current saving (re-sources withdrawn from current consumption to help increase future output),the old issue of the differential tax treatment of alternative types of capital arises. Sensible tax policy with respect to the taxation of either physical or human capital must take into account the tax treatment of the alternative asset. Section 3 outlines some points of departure for such an analysis.

Taxation, Saving and the Rate of Interest

After exploring both the crucial role of the interest elasticity of the saving rate in the analysis of a wide variety of issues in economic - particularly tax - policy and reasons why previous studies of the effect of interest rates on consumption and saving have biased the estimated elasticity toward zero, this study presents new estimates of consumption functions based on aggregate U.S. time series data. The results are striking: a variety of functional forms, estimation methods and definitions of the real after-tax rate of return invariably lead to the conclusion of a substantial interest elasticity of saving.

Optimal Tax Theory: Econometric Evidence and Tax Policy

The purpose of this paper is to provide a progress report on the issue of the implications of optimal tax theory and recent econometric evidence for tax policy. Toward this end, Section 2 provides a brief and often heuristic summary of the major results of optimal tax theory. Section 3 reports the results of some recent econometric studies of saving and labor supply. Finally, Section 4 outlines the implications of the combined theory and econometric evidence for tax policy.

The role of rules in monetary policy (conference panel discussion)

Monetary policy - United States

An Analysis of U.S. Postwar Consumption and Saving: Part II -- Empirical Results

A new empirical analysis of aggregate United States consumption and saving for the period 1947-80 is presented. The model is based on the theory of exact aggregation. It recognizes explicitly that households with different characteristics may be heterogeneous in their behavior and that aggregate behavior may depend on the changing composition of households by characteristics and therefore may not be adequately portrayed by a representative consumer, but otherwise it imposes minimal assumptions on household behavior. The model integrates longitudinal and cross-sectional microeconomic data on household characteristics with the traditional aggregate time-series data. Various hypotheses on consumption, such as age independence, proportionality to wealth, and price independence, are tested , and rejected. Strong evidence of relative price effects and a systematic variation of aggregate consumption with changing age distribution of wealth in the economy is found. Especially important is the substantial estimated difference in the shares of wealth consumed between households headed by persons born prior to and those born after 1939. One important lesson from this study is that modeling the aggregate U.S. economy as a representative consumer may give rise to misleading results.

Pubic Debt and U.S. Saving: A New Test of the Neutrality Hypothesis

The substantial post war decline in the U.S. saving rate has added great impetus to the debate over whether public debt policy crowds out saving. Rather than attempting to reject specific saving models, empirical research on debt policy and savings has primarily focused on the impact of particular policy variables on savings. In this paper we examine Barro's infinite horizon, intergenerationally altruistic model. A distinguishing feature of this modelis that aggregate consumption depends only on collective resources and not the age distribution of resources.To test this proposition we specify the Barro model under earnings uncertainty, rate of return uncertainty, and demographic change and test whether, given the level of consumption predicted by this model, variables measuring the age distribution of resources influence actual consumption. Data on the age distribution of resources are primarily obtained from the annual Current Population Surveys. Our results imply a rejection of the hypothesis that aggregate consumption is independent of the age distribution of resources.They therefore cast doubt on the contention that government debt policy does not affect consumption and saving.