How Taxes Affect Economic Behavior

By Henry J. Aaron; Joseph A. Pechman | Go to book overview

Conclusion

The major strength of the paper is its approach to the evaluation of fiscal policies on saving, and for this reason my comments have centered almost exclusively on the parts where this approach has not been consistently applied. In particular, there are two aspects of the approach to investigating the determinants of the national saving rate that lead me to advocate that future work build upon the framework suggested here. The first is that the estimated saving rate functions attempt to account for the interrelationships between the saving decisions of the household, corporate, and government sectors. The second is that the estimated saving functions allow for the different impacts of anticipated and unanticipated fiscal changes.

However, any future empirical evaluations of the effects of fiscal policy on saving using the approach of this paper would be considerably strengthened if two modifications were made. First, I advocate switching the focus from the reaction function for the government saving rate to separate reaction functions for government expenditures and taxes, perhaps with some type of constraint on the surplus imposed through the loss function. Such a modification of the approach would overcome what I identified as a potential pitfall, since now tax and spending changes could be more accurately decomposed into their anticipated and unanticipated components.

Second, I advocate more explicit modeling of the behavior of the household and corporate sectors to take account of the effects of the an ticipated as well as the unanticipated components of government actions. In particular, the role of anticipated fiscal policy actions in the formation of expectations concerning future income and interest rates should be made more explicit. Further, government expenditures could be included in the households' utility function with current taxes (and future tax liabilities to the extent that they are discounted) included in the budget constraint. Or household ownership of firms could be explicitly included in the household budget constraint so that the personal and the corporate saving decisions were simultaneously determined. In addition to decreasing the ad hoc nature of the current specification, more explicit modeling might also allow the evaluation of the major institutional changes in the application of fiscal policy that result from decisions to modify the form of the government's reaction functions. The current specifications do not have this capability.

-402-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
How Taxes Affect Economic Behavior
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
/ 456

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.