Abstract
In closed economies, saving and investment represent, respectively, the supply of and demand for new domestic capital. Saving incentives shift the supply curve for new domestic capital, while investment incentives shift the demand curve. The basic public finance equivalence theorem—the real effects of a tax (subsidy) are independent of who nominally pays the tax (receives the subsidy)—applies equally well to the market for new capital. Hence, in closed economies, saving and investment incentives do not represent conceptually distinct policies, and the real effects of taxes or subsidies applied to the supply of new capital, saving, can be replicated by taxes or subsidies applied to the demand for new capital, investment.
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© 1983 Kluwer-Nijhoff Publishing
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Auerbach, A.J., Kotlikoff, L.J. (1983). Investment Versus Savings Incentives: The Size of the Bang for the Buck and the Potential for Self-Financing Business Tax Cuts. In: Meyer, L.H. (eds) The Economic Consequences of Government Deficits. Economic Policy Conference Series, vol 2. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-6684-0_7
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DOI: https://doi.org/10.1007/978-94-009-6684-0_7
Publisher Name: Springer, Dordrecht
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