The Impact of the 1986 Tax Reform Act on Personal Saving

Jonathan Skinner · Daniel R. Feenberg

47 citations0/0 files storedNational Bureau of Economic Research

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Financial Literacy, Pension, Retirement Analysis Economic and Fiscal Studies Fiscal Policy and Economic Growth

Abstract

Many critics believed that the Tax Reform Act of 1986 (TRA86) would discourage saving.Yet personal saving rates have rebounded since 1987.This rebound might have been caused by a general decline in marginal tax rates on household saving.And we estimate, at least for the 1980s, a positive elasticity of saving with respect to the after-tax rate of return.But the tax changes alone cannot account for the recent upswing in saving rates.Furthermore, the positive saving elasticity during the 1980s is fleeting and fragile; during the entire postwar period the correlation between the after-tax rate of return and personal saving is at most zero.impact on the composition than on the overall level of saving.

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References

1978Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence 1981Capital Taxation and Accumulation in a Life Cycle Growth Model 1978Taxation, Saving, and the Rate of Interest 1990Have Iras Increased U. S. Saving?: Evidence From Consumer Expenditure Surveys 1985Uncovering Financial Market Expectations of Inflation 1978The Measurement and Determination of Loanable-Funds Saving 1986Tax-Deferred Accounts, Constrained Choice and Estimation of Individual Saving

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