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The Economists' VoiceTop Economists Take On Today's Problems$
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Joseph Stiglitz, Aaron Edlin, and J. Bradford DeLong

Print publication date: 2011

Print ISBN-13: 9780231143653

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231143653.001.0001

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Progressive Consumption Taxation as a Remedy for the U.S. Savings Shortfall

Progressive Consumption Taxation as a Remedy for the U.S. Savings Shortfall

Chapter:
(p.170) Chapter 20 Progressive Consumption Taxation as a Remedy for the U.S. Savings Shortfall
Source:
The Economists' Voice
Author(s):

Robert H. Frank

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231143653.003.0020

This chapter addresses the question of why American savings rates, always low by international standards, have fallen sharply in recent decades. It argues that low U.S. savings rates are in large part a result of pressures to keep pace with community spending standards—pressures that have been exacerbated by rising income and wealth inequality. Replacing the income tax with a progressive consumption tax would stimulate additional savings by reducing the price of future consumption relative to current consumption as compared to its price under the current income tax. Perhaps more important, a progressive consumption tax would stimulate savings by altering the social context that shapes spending decisions.

Keywords:   savings rates, community spending standards, wealth inequality, income tax, consumption tax

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