Taxes on Savings (ch 22) Capital Income Taxation refers to: A.

Taxation and Savings Theory and Evidence 1. Traditional Theory

The intertemporal choice model is:

a. Simplified Model

intertemporal budget constraint

The opportunity cost of first-period consumption is the ____________________ not earned on savings in the second period.

b. Substitution and Income Effects of Taxes on Savings

2. Evidence

3. Inflation and the Taxation of Savings

Bracket Creep:

a. Capital taxation in an inflationary environment:

b. formula for relationship between real and nominal interest rates

B. Alternative Models of Savings 1. Precautionary Savings Models Precautionary savings

Liquidity constraints

Evidence

2. Self-Control Models

Evidence Several pieces: - commitment mechanisms

- non-liquid savings

- Save More Tomorrow

C. Tax Incentives for Retirement Savings 1. Available Tax Subsidies for Retirement Savings a. Tax Subsidy to Employer-Provided Pensions

defined benefit plan

defined contribution plan

b. 401(k) accounts

c. Individual Retirement Accounts (IRAs)

d. Keogh Accounts

2. Why do tax subsidies raise the return to savings?

3. Theoretical Effects of Tax-Subsidized Retirement Savings

Limitations:

The Roth IRA:

4. Implications of Alternative Models a. precautionary savings

b. self-control models

5. Private vs National Savings

6. Evidence on Tax Incentives and Savings