Clemson UniversityTigerPrints

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5-2007

The Effect of Taxes on Saving: Evidence from 29OECD CountriesCaihua ZhengClemson University, czheng@clemson.edu

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Recommended CitationZheng, Caihua, "The Effect of Taxes on Saving: Evidence from 29 OECD Countries" (2007). All Theses. 89.https://tigerprints.clemson.edu/all_theses/89

THE EFFECT OF TAXES ON SAVING： EVIDENCE FROM 29 OECD

COUNTRIES _______________________________________

A Thesis

Presented to the Graduate School of

Clemson University ________________________________________

In Partial Fulfillment

of the Requirements for the Degree Master of Arts

Economics _________________________________________

by

Caihua Zheng May 2007

_________________________________________

Accepted by: Dr. William R. Dougan, Committee Chair

Dr. David Gordon Dr. Lei Zhang

1

ABSTRACT

Despite an extensive literature on the determinants of savings, the effects of tax

policy on saving behavior have not been resolved conclusively. The purpose of this

thesis is to estimate the impact of tax policy on both national and private saving rates

using panel data collected for 29 OECD countries spanning a thirty year period from

1975 to 2005. Using tax rate changes to reflect tax policy changes, the cross-section

and the panel data models incorporate the statutory value-added tax rate, the average

and top personal income tax rate and the top corporate income tax rates as

indicators of tax policy for all OECD countries. The key findings indicate that these

primary taxes rates have a joint significant effect on both saving rates. Consistent

with the predictions of theory, the average personal income tax rate has a negative

and significant effect on saving, while the consumption tax rate has an insignificant

effect. The empirical results derived from analysis in the thesis indicate that shifting

income taxes to consumption taxes would promote saving. By the result, the

government may influence saving more effectively by changing the design of the tax

system.

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3

ACKNOWLEDGMENTS

I am extremely grateful to my advisor, Dr. William R. Dougan for his financial

support and his professional guidance. I would like to thank my other committee

members, Dr. David Gordon and Dr. Lei Zhang, for advice and help. I am also

grateful to Dr. Angela K. Dills for her helpful comments on the data analysis.

4

5

TABLE OF CONTENTS

Page

TITLE PAGE......................................................................................................................... i ABSTRACT ............................................................................................................................ iii ACKNOWLEDGEMENTS................................................................................................ v CHAPTER 1. INTRODUCTION .............................................................................................. 1 2. THEORETICAL DETERMINANTS OF SAVING .................................... 5 3. ECONOMETRIC MODEL .............................................................................. 11 3.1 Cross-Sectional Data Model ................................................................... 11 3.2 Panel Data Model..................................................................................... 11 4. DATA DESCRIPTION AND ANALYSIS..................................................... 15 4.1 Saving Rates .............................................................................................. 17 4.2 Explanatory Variables.............................................................................. 18 5. ESTIMATES AND RESULTS .......................................................................... 21 5.1 Cross-Sectional Estimation..................................................................... 21 5.2 Fixed-Effect Estimation.......................................................................... 23 6. CONCLUSION.................................................................................................... 27 APPENDICES....................................................................................................................... 29 A: Data Sources .......................................................................................................... 31 B: Variable Definitions and Sources........................................................................ 33 C: Additional Tables and Figures............................................................................. 35 REFERENCES...................................................................................................................... 53

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0

CHAPTER 1.

INTRODUCTION

In recent years, there has been a large amount of empirical work on the determinants

of saving both in developed and developing countries (Klaus, Steven, and Giancarlo,

1991; Paul, Tamim, and Hossein, 1998), prompted by the widespread concern over

falling saving rates in the major OECD countries. The effects of taxation on the

volume and composition of saving have traditionally been considered one of the

central questions in public finance. This fact is hardly surprising. From a policy point

of view one can point to a series of arguments for the importance of the problem. If

alternative tax systems can lead to different saving rates, the choice made should

consider the short-run effects on output, the medium-term effects on the capital

intensity of the economy, and the long-term effects on the rate of growth. These are

basically the issues of the efficiency of resource allocation, but distributional policy is

also involved. A tax policy designed to encourage saving may transfer income from

workers to capitalists and from present to future generations. Ken (1990) and Ilona

(1990) used a cross-country and time-series analysis of OECD data for 23 countries

and found that neither consumption tax in general, nor a value added tax (VAT) has

any impact on the rate of saving; a result is consistent with the theoretical prediction.

However they simultaneously found no relationship between changes in the use of

income taxes and changes in the rates of saving in the OECD countries and

contended that shifting income taxes to consumption taxes would not increase

saving. This result is inconsistent with the theoretical prediction and the results in

this thesis.

1

While there has been increasing interest in the impact of tax policy on saving

behavior, the tradition in the literature (Apps and Rees, 1988) has concentrated on

household decisions and took the private saving rate as the primary determinant of

the overall rate of saving. In addition, the empirical evidence regarding the effect of

tax incentives on saving remains inconclusive （Boadway and Wildasin, 1994).

However, underlying this view lie a number of assumptions about market structure

and incentives, which need both theoretical justification and empirical verification. In

principle, since savings decisions can be made by consumers, firms and government,

the role of private corporations and government must be considered. The

government, for example, intervenes directly in private saving decisions through tax

policy, public pension plans and social security provision. The interaction between

private and government saving decisions has recently become a very active area of

research (Poterba, 1994).

A number of cross-country studies (Edwards, 1996; Schmidt-Hebbel, Webb,

Corsetti, 1992) have provided useful insights into the determinants of saving

behavior by analyzing the widely different savings performance between countries

and within countries over time. The use of cross-country and panel data techniques

has a number of advantages over individual country time-series studies of saving

behavior. As saving represents an inter-temporal decision on the part of the

households, firms and government that is often related to life-cycle considerations,

the relatively short period for which time-series data is usually available (often less

than one generation) means that this information is unlikely to be rich enough to

capture adequately the influences on lifetime saving decisions. Further, many of the

variables influencing the saving decision change only slowly over time (demographics,

2

tax structure, etc.) and, given this lack of variation in time series, are unlikely to be

significant in a single country time-series regression. In this thesis, this problem can

be overcome to some extent by including in the analysis a number of countries (29

OECD countries) having different experiences with regard to saving, to enrich the

information contained in the data set, and to allow more precise coefficient estimates

to be obtained.

Due to concerns about the consistency and comparability of saving data

across countries, this study focuses on both the national saving rate and the private

saving rate instead of studying either of them alone. Although there have been a

number of individual country studies that have looked at these issues (Masson,

Bayoumi, and Samiei, 1995), few have used panel data. In this paper, I use panel data

and introduce three different types of tax rates that aim to capture the structure of

the tax system in each country. This thesis seeks to add to the existing literature on

the empirical determinants of saving behavior by introducing three different types of

tax rates as explanatory variables that aim to capture the structure of the tax system

in each country.

The next section of this thesis presents some of the theoretical determinants

of the saving on which the econometric model is based. Chapter 3 discusses the

econometric model. Discussed in Chapter 4 are the data sources, the definition and

measurement of these variables. Chapter 5 presents the empirical results obtained

from the cross-sectional and the panel data estimations. Chapter 6 summarizes and

interprets findings.

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4

CHAPTER 2.

THEORETICAL DETERMINANTS OF SAVING

There are multiple sources of national saving. Households or individuals save in

order to maintain living standards into retirement and to insulate themselves from

temporary variations in income due to changing economic conditions. Businesses

save when they do not pay out all of their profits in the form of dividends. The

public sector can also be a source of national saving. When tax revenues exceed

public outlays, government is a net contributor of saving to the economy; when

revenues are insufficient to cover outlays, the public sector dissaves. In other words,

saving that might have gone for other uses goes to pay for current government

spending. Together, households, businesses, and governments account for total

national saving.

The theoretical literature suggests a variety of motives for saving, broadly

grouped into four categories: to provide resources for bequests; to finance expected

large lifetime expenditures, such as house purchases and education; to finance

unexpected losses of income (precautionary saving); and to smooth the availability of

financial resources over time to maintain a more stable consumption profile

(consumption smoothing).

As can be seen from the Figure 3, national saving rates and private saving

rates are highly correlated with each other, with a correlation coefficient of 0.734,

suggesting that the factors influencing private saving also influence national saving.

The factors that might account for differences in saving rates across countries

therefore include household-level differences and national policy differences. Among

5

those factors are:

1. Demography. The balance of the population between those not yet to join the

workforce, those of working age, and those retired will influence the saving rate. As

households tend to save more when working, the saving rate will be higher in

countries where the proportion of people of working age is higher, other factors

being equal. In a country with an older retirement age, people are likely to save less

than those in a country with younger retirement age, all other factors being equal.

2. The welfare state. If the retired receive state pensions, health care and other state

benefits that are financed predominantly out of taxes levied on people of working

age, then saving will be lower relative to a country in which people need to make

greater personal provisions for their retirement.

3. Constraints on borrowing. People may wish to borrow, particularly when young, to

finance house purchases or immediate consumption with the intention of repaying

the loan later. If access to loans in one country is tighter or more regulated relative to

another, then this country is likely to have a higher saving rate.

4. Income distribution over a lifetime. The way in which income varies with age may differ

from country to country, in part because different countries have different systems

of tertiary education. This should be expected to have some influence on saving rates.

5. Income uncertainty. If people in one country face more income uncertainty than in

another, especially if they are borrowing constrained, they will save more to ensure

themselves against adverse income shocks.

6. Capital gains. The national accounts do not include capital gains on assets as part of

income. Hence, if people in one country hold on average a higher proportion of their

assets as corporate equity (whose return can be substantially in the form of capital

6

gains) than in another, then their measured saving rate is likely to be lower, all other

factors being equal.

The impact on saving of some of these factors is well defined and is both

theoretically and empirically consistent. For example, many country studies (Corbo

and Schmidt-Hebbel, 1991) find that government expenditure has a negative impact

on saving. Further, the life-cycle hypothesis(LCH) implies that the higher the old-age

dependency ratio (defined as the proportion of the population over 64 to the

working-age population), the lower will be aggregate saving as these people dissave

in retirement. This finding is generally supported by econometric evidence

(Kennickell, 1990) and survey information (Boadway and Wildasin, 1994), both of

which show that the saving rate peaks toward the end of the working life and falls in

retirement. For some other variables, however, there remains a good deal of

uncertainty about their importance. The impact of a change in the real interest rate

on saving is sometimes found to have a small positive impact on saving, but often

this impact is statistically insignificant.

With respect to the effects of taxes on the level of saving, two observations

can be drawn from the traditional literature. First, public dissaving in the form of

federal budget deficits reduces national saving to the extent that private saving does

not completely offset budget deficits. So, if tax reform adds to the federal budget

deficit, then, everything else being equal, tax reform would reduce national saving.

Second, even if tax reform is revenue neutral, the substitution effect of changes in

the tax treatment of savings alone can affect private, and therefore, national saving.

There is no potentially offsetting income effect on saving, because tax revenues are

not lost to the economy as a whole. This channel of influence—the substitution

7

effect of taxes on saving—is the primary focus of this thesis

There are three reasons why income taxes may be detrimental to saving at a

macroeconomic level. First, since income taxes are generally progressive, high-

income households, which may save more in order to leave larger bequests relative

to income, are affected more than the rest of the population. Second, the working-

age population, which comprises the high-saving age groups, pays the bulk of direct

taxes; indirect taxes, in contrast, are more evenly distributed across income and age

groups. Finally, income taxation taxes saving twice—once when it is first earned and

again when it generates interest or dividend income or capital gains.

The income tax reduces the after-tax return on all capital in both the

corporate and non-corporate sectors (Harberger, 1962), thereby reducing the

equilibrium capital stock in the long run. To the extent that domestic saving is

correlated with domestic investment (Feldstein and Horioka, 1980), the smaller

capital stock can be maintained with a lower saving rate. The income tax reduces

lifetime wealth and leaves the after-tax interest rate unchanged. The time profile of

consumption over the life cycle will shift downwards though its shape will remain

the same. Similarly, the time profile of earnings will shift downwards during working

periods. Saving will fall during the working years since less consumption during

retirement needs to be financed, and fewer assets will be demanded. The earlier in

the life cycle are earnings obtained, the greater will be the decrease in saving.

Equivalently, the later in the working part of the life cycle is a wage tax imposed, the

higher the proportion of the tax will go to reduced savings

The effect of a value-added tax depends entirely on the type of VAT. A VAT

of the product type imposes a higher tax rate on capital than does an income tax

8

because it taxes all income from capital. A VAT of the income type, like an income tax,

taxes capital’s income net of depreciation. A VAT of the consumption type exempts all

capital income, and therefore does not distort the saving decisions of households or

firms. A consumption tax of equal revenue yield to an income tax causes the

consumption stream to decline in exactly the same way as a personal income tax

does. In the case of a lifetime utility function that is the discounted sum of identical

per-period utility functions, saving and asset accumulation will be unchanged by a

consumption tax. The rise in the cost of consumption with given lifetime wealth

causes consumption to fall in the same proportion across each period. Since the

consumption tax is also applied proportionately across each period, consumption

expenditures inclusive of the tax remain unchanged; therefore, the same amount of

saving is required in order to finance them. As it happens, every OECD country that

imposes a VAT of the consumption type, so in the rest of this thesis the term

“value-added tax” corresponds to “consumption tax.”

9

10

CHAPTER 3.

ECONOMETRIC MODELS

3.1 Cross-Section Data Model

The equation estimated is a linear saving equation with the control variables and tax

variables added to capture the structure of the tax system. It is represented as the

following:

nnsavr_gnii(psavi_gdpi)=α+β1gexpen_gdpi+β2rgdp_capi+β3popu_proi+β4vat_ratei

β5tpit_ratei+β6tcit_ratei+εi with i=1…29

where i is the country index.

For simplicity, this model is assumed to satisfy the following two assumptions:

(1) no heteroskedasticity in the observed relationship across countries;

(2) no endogeneity between the saving rates and some of the explanatory variables in

the regression

3.2 Panel Data Model

The most general linear model in response to panel data is

itkit

k

kkitit X εβ +=Υ ∑

=1

, i=1, …, N; t=1, …, T

where N is the number of individual and T is the number of periods. The

econometric model in this paper is based on the assumption of a linear relationship

between the saving rates and tax variables: vat_rate, the statutory value added tax

11

rate; tpit_rate, the statutory top marginal personal income tax rate; tcit_rate, the

statutory top corporate income tax rate with three controlled factors: rgdp_cap, the

real GDP per capita; popu_pro, the ratio of people between the ages of 24 and 64

to the total population; gexpen_gdp, the ratio of general government expenditure

to GDP. This model can be defined as Yit=βiXit+ziδ+ui+εit t=1975, 1980,

1985, 1990, 1995, 2000, 2005; i=1,2,…29

where Xit are a 1 x 6 vector of explanatory variables that vary over country and time

β represents the 6 x1 vector of coefficients on X,

zi represents 1 x 29 vector of time-invariant variables that vary only over countries,

δ represents the 29 x 1 vector of coefficients on z,

ui represents the country-level effect,

εit is the disturbance term,

and i and t are country and time indices respectively.

Applying the fixed effect (FE) estimator to the dataset shows that the ui are

correlated with the predicted values of savings rates generated from an OLS

regression without country-specific effects, the correlation coefficient being

approximately -0.185. In addition, the F-test value of the null hypothesis that the

constant terms are equal across countries is large enough for that hypothesis to be

rejected. A rejection of this null hypothesis indicates that the simple pooled OLS

regression produces inconsistent estimates. Random effects (RE) estimates were also

considered in the Hausman test framework, fitting both models and comparing their

common coefficient estimates in a probabilistic sense. Test statistic χ2 was found

large enough at 5 percent level of significance to reject the Hausman test’s null

hypothesis that the RE estimator is consistent. Therefore, the county-level effects

12

appear to be correlated with the predicted value and RE estimates should not be

considered.

This model has explanatory power only if the country’s dependent variable

(Y), either above or below its mean, is significantly correlated with the country’s

independent variables (X) values above or below the country’s vector of mean X

values. For this reason, it is termed the within estimator since it depends on the

variation within the country over time. It does not matter if some countries have

very high y values and very high x values because only the within variation will show

up as explanatory power.

One important assumption for the one-way FE estimator is that the ui are

not correlated with εit, and that the slope coefficients are restricted to be constant

over both units and time, allowing for an intercept coefficient that varies by country.

For a given observation, an intercept varying over countries results in the following

model:

nnsavr_gniit(psavi_gdpit)=β1gni_cptit+β2pop_pctyit+β3gexpen_gdpit+β4tpit_rateit+β5t

cit_rateit+β6vat_rateit+ziδ+ui+εit t=1975, 1980, 1985, 1990, 1995, 2000, 2005;

i=1,2,…,29

where nnsavr_gni is the dependent variable that varies over country and time;

gni_cpt, pop_pcty, gexpen_gdp, tpit_rate, tcit_rate, and vat_rate are explanatory

variables that vary over country and time; and βi are the coefficients on explanatory

variables.

The two-way FE model is considered by adding time effects to the one-way

FE model. Just as the one-way FE model requires regressors’ variation over time

within each unit, a time FE requires regressors’ variation over units within each

13

period. The time effects are found to be jointly significant, suggesting that they

should be included in the model.

14

CHAPTER 4.

DATA DESCRIPTION AND ANALYSIS

The sample used in panel data estimation is five-year interval average over the 1975-

1979, 1980-1984, 1985-1989, 1990-1994, 1995-1999, 2000-2004 periods for the test

years 1975, 1980, 1985, 1990, 1995, and 2000 respectively; the test year 2005 is the

only single year 2005. Average of five-year interval helps to solve the missing

observation problem of early years in some countries and to generate larger variation

of variables over time for fixed effect analysis. Although it does not fill all missing

observations due to the substantive years of missing in some particular countries, it

represents a substantial improvement for the missing data problem. Cross-Sectional

estimates use data averaged over the full 1975–2005 period for all the variables

except that the average personal income tax rate is averaged over the period 1995-

2005. The main statistics of data set are listed in Table 4. The dependent variable in

the regressions is the ratio of net national saving to GNI (nnsavi_gni) and the ratio

of private saving to GDP respectively. The set of explanatory variables is as follows

(the exact definitions and the data sources are in the Appendix A-B):

• nnsavi_gni: the ratio of net national saving to gross national income (GNI)

• psavi_gdp: the ratio of private saving to GDP

• popu_pro: ratio of people between the ages of 24 and 64 to the total

population

• rgdp_cap: real GDP per capita measured in 1000 constant 2000 US dollars

• gexpen_gdp: ratio of general government expenditure to GDP

15

• vat_rate: statutory value added tax rate

• apit_rate: average personal income tax rate

• tpit_rate: statutory top marginal personal income tax rate

• tcit_rate: statutory top corporate income tax rate

The net national saving rate and the private saving rate for OECD countries

was regressed on several potential explanatory variables that could be collected on a

reasonably comparable basis across all countries (See Appendix B: Variable

Definition and Sources). These explanatory variables include the ratio of

government expenditure to GDP, the ratio of people between the age of 24 and 64

to the total population, the real GDP per capita measured in constant 2000 US

dollars, the standard value added tax rate, the average personal income tax rate, the

top marginal personal income tax rate, and the top corporate income tax rate.

Although the average personal income tax rate could have been included, it was

omitted from the panel data analysis and used only in the cross-country analysis

because observations are only available for the years 1995-2005.

The mean and the ANOVA of the dependent and explanatory variables are

shown in Table 2 and 4. While some variables are relatively similar across countries

and vary mostly over time, other variables differ greatly among countries but

relatively constant over time. A formal analysis of the cross-country and time-series

variation of the variables as a percent of the total variation is contained in Table 3.

As can be seen, for all variables except the top personal income tax rate and the top

corporate income tax rate, the majority of the total variation is due to cross-country

variation, with only a relatively small proportion resulting from variation over time.

16

4.1 Dependent Variables--Saving Rates

The net national saving rate is measured by the net national saving divided by

the gross national income (GNI). The net national saving is equal to the gross

national savings less the depreciation of physical capital. According to the National

Income and Product Accounts, gross national saving is composed of two major

parts: private saving and public saving. Private saving can be further divided into

personal saving and corporate saving. Personal saving represents the household after-

tax income not used for consumption, while corporate saving represents the portion

of after tax profits retained after the distribution of dividends and the funds set

aside to replace plant and equipment that has depreciated. The net business saving is

calculated by subtracting depreciation from retained earnings. Public sector saving

includes government at the federal, state, and local levels. If the net budget position

of the public sector is in surplus, then the public sector is a net saver. If the net

budget position of the public sector is in deficit, then the public sector is a net

dissaver. The net national saving is the sum of net private saving and public saving,

increasing or decreasing if either net private saving or public saving changes. The

private saving rate is measured as the difference between gross national saving rate

and gross government saving rate. Gross national saving rate is a ratio of gross

national saving to GDP, gross government saving rate is a ratio of government

saving to GDP. Table 1 reports some main statistics of the both saving rates:

17

Table 1. Main Statistics of Both Savings Rates

Mean Max Interquartile Range

nnsavi_gni 1.49 23.78 5.43

psavi_gdp 14.33 36.8 6.01

Figures 1 in Appendix C shows the cross-country differences of the net

national saving rate and the private saving rate in the 29 countries used in this study

for the period 1975-2005. The mean of both the net national saving rate and the

private saving rate over 1975-2005 differs substantially across OECD countries.

Korea, Luxembourg, Japan and Switzerland are ranked as the top four high-saving

countries, while the United Kingdom shows the lowest saving with a rate below 5 %

for the net national saving rate and 20% for the private saving rate. Figure 2 shows

the time trend of the private saving rate and the government surplus or deficit rate of

each OECD country. Figure 3 reports the time trend of the both saving rates of each

OECD country, as this figure shows the saving rates tend to decline in most

countries during the 30 years. Only a few countries, specifically Germany and Iceland

tend to increase, while countries like Spain and Denmark remain basically unchanged.

4.2 Explanatory Variables

In this thesis, the statutory value-added tax rate, the statutory top marginal

personal income tax rate and the statutory top corporate income tax rate are the

explanatory variables used to capture the tax policy changes in the OECD countries.

These three statutory tax rates result directly from the tax policy legislation of each

18

country. The statutory value-added tax rate in the countries with multiple rates is

defined as the standard rate applied to goods and services not covered by other

much higher or lower rates.

The tax structure differs considerably among the OECD countries. As can be

seen from Figure 4, Iceland and Switzerland have the lowest tax burden among these

countries. In Australia, Canada, Japan, New Zealand and Switzerland there is a heavy

reliance on direct taxes, with the statutory value-added tax rate much lower than the

top corporate income tax rate and top personal income tax rate. Figures 5a to 5c

indicate that the value-added tax rate has tended to increase after it was introduced in

many OECD countries (see Table 1 in Appendix for when VAT was introduced in

each country), while the top personal income tax rate and top corporate income tax

rate have tended to decline, indicating that most OECD countries are changing from

direct income tax to indirect consumption tax. As can be seen from Figure 4, the

statutory value-added tax differs more substantially across countries than do the top

marginal personal income tax rate and the top corporate income tax rate. Figure 6

shows the aggregate time trend of the mean of tax rates and the mean of the saving

rates over all countries. This figure also supports the individual country time trends

of these variables discussed previously.

Three more explanatory variables are considered as the determinants of

saving. These are real GDP per capita measured in constant 2000 US dollars, the

ratio of general government expenditure to the GDP, and the demographic

characteristics measured by the ratio of people between the ages of 24 and 64 to the

total population.

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20

CHAPTER 5.

ESTIMATES AND RESULTS

In this section, the econometric models were applied to estimate the parameters of

interests in the following two cases: first, cross-sectional data model through simple

OLS regression; second, panel data with the OLS regression, panel data with one-

way Fixed-Effect regression, two-way Fixed-Effect regression and first-difference

regression.

5.1 Cross-sectional Estimation

This subsection seeks to explain the difference in national saving rate (private

saving rate) across countries. To do this, two sets of regressions were estimated:

average over the full-time horizon (1975-2005) with either of two variables (apit_rate

and tpit_rate), and a simple OLS regression of cross-section data in the year 2005.

These regressions involve 29 observations, one for each country. The estimation

results are shown in Table 5a with dependent variable of net national saving rate and

5b with dependent variable of private saving rate. The results in the first three

columns shown in both tables are estimated based on the average value over the

entire sample period 1975-2005 of all variables, while the results in last three

columns shown in both tables are estimated based on cross-section data on year

2005. From Table 5a and 5b, the following results are concluded:

1. The VAT is neutral and has no impact on saving in all cases of cross-section

estimations.

21

2. For cross-section estimates based on average value over the entire sample

period, the average personal income tax rate has a robust and significant

negative effect on saving at the 10 percent level, with the coefficient

approximating to -0.25 indicating that, on average, a four percentage point

increase in average personal income tax rate will decrease the saving rate by

approximately one percentage point if the other variables remain constant.

The F-values greater than 2.6 with the dependent variable of private saving

rate show the included tax rates have a jointly significant effect on saving at

10 percent level. The impact of the average personal income tax rate remains

negative in estimates based on 2005 cross-section data, but it is estimated

imprecisely.

3. There is no evidence that the progressivity of the personal income tax rate by

itself reduce saving.

4. When the effect of the average personal income tax rate is taken in account,

the corporate income tax also appears to lower the saving rate. Although the

magnitude of the effect appears to be substantial, it is only marginal

statistically significant (t-value less than 1.6 in both tables). While this effect is

observable from average value of the variables over entire sample period, it is

not apparent from the cross-section 2005 data.

5. The level of government expenditure relative to GDP has a negative and

significant effect on both saving rates. While real GDP per capita and the

demographic variable both have a positive effect on saving rates, but they are

not significant at 10 percent level for the effect on the national saving rate.

22

6. The personal income tax rates (both average personal income tax rate and top

marginal personal income tax rate) have a jointly significant effect on saving

at the 10 percent level, with the F-statistic for test of the joint significance of

personal income tax rate more than 2.5 in all cases in Table 5a and 5b.

5.2 Panel Data Estimation

In this subsection, both the cross-country and time-series information in the

data are exploited through panel estimation. A pooled OLS regression, one-way fixed

effect, two-way fixed effect and a first-difference are applied in the panel data with

the results of four sets of outcomes of analysis.. Compared with the results of the

cross-country regression, the panel data analysis shows inconsistent results with the

theory, most likely due to the lack of observation of the average personal income tax

rate. The panel data regression results from the different analytical methods are

shown in Table 6a and 6b. From these results, the following four conclusions can be

drawn:

1. While panel data estimates might generally be preferable, they are

problematic in this case, because of the lack of observation of the average

personal income tax rate over 1975-1990 periods. The average personal

income tax rate is a critically important variable, as is clear from a

comparison of Columns 1 and 3 to column 2 in table 5a and 5b. In table 5b,

omission of the average personal income tax rate dramatically changes the

estimate coefficients of other tax variables. The pattern of the coefficients

reported in tables 6a and 6b are broadly consistent with the results reported

23

in Column 2 of the tables 5a and 5b

2. GDP per capita has a positive and significant effect on the both saving rates.

The coefficients in two-way fixed effect indicate that on average, a 1000-

dollar increase in GDP per capita will increase the national saving rate by

approximately 0.38 percent point and the private saving rate by 0.26 percent

point if the other variables remain constant, while the robustness shown in

first difference analysis appear to be strongest at the value of 1.923. This

result is consistent with life-cycle hypothesis that a rise in GDP per capita

will lead to higher saving rate.

3. Demographics measured by the ratio of people between the ages of 24 and

64 have a positive and significant effect on both saving rates at 10 percent

level except the one-way fixed effect and first-difference cases for the net

national saving rate, as indicated by the small t value in Table 6a. This result

is consistent with the life-cycle model of saving which suggests a higher

young-age ratio being associated with lower saving rates. If a high proportion

of the population is of working age, then the economy should have a high

rate of saving, as workers provide for their retirement. Conversely, when this

cohort reaches retirement age and dissaves, or at least consumes a larger

fraction of its income, then the aggregate saving rate should decline.

4. Government expenditure relative to GDP has a negative and significant

effect on the both saving rates. As can be seen in Table 6a and 6b, a one

percentage point increase in government expenditure relative to the GDP, on

average, will result in approximately 0.617 percentage point decrease in the

net national saving rate and 0.308 percentage point decrease in the private

24

saving rate in the two-way fix-effect case if other factors remain constant.

The reason for the result is that increased government spending not only

reduces public saving directly but also may lower the resources available to

the private sector and, therefore, has a negative effect on saving, regardless of

whether it affects the deficit. This also reflect the effect of a greater level of

social-welfare spending.

25

26

CHAPTER 6.

CONCLUSION

This study has used both cross-section and panel data from 29 OECD countries to

investigate the effect of taxes on both national saving rate and private saving rate.

Cross-country analysis shows that tax rates have a jointly significant effect on saving.

It also shows that the average personal income tax rate has a negative and significant

effect on both saving rates; on average, a one percentage point increase in the

average personal income tax rate will result in approximately one quarter percentage

point decrease in saving rates holding other factors constant. The panel data analysis

shows inconsistent results due to the lack of average personal income tax rate.

However, both sets of results suggest that government expenditures reduce saving

rates significantly, and that real GDP per capita has a positive and significant effect

on saving rates. The ratio of people between the ages of 24 and 64 to total

population also has a positive and significant effect, especially when time effects are

controlled in the analysis. These findings suggest that tax policy changes influence

saving rates, not only through the direct tax effects but also through the level of

public spending itself. The impact on saving is one factor that needs to be

considered by governments in designing or changing tax system

27

28

APPENDICES

29

30

Appendix A: Data Sources

The following sources were used: OECD Database: http://stats.oecd.org/wbos/default.aspx?datasetcode=SNA_TABLE2 OECD Tax Database: http://www.oecd.org/document/60/0,2340,en_2649_37427_1942460_1_1_1_37427,00.html United Nations, World Population Database: http://esa.un.org/unpp/index.asp?panel=1 United Nations, Statistical Database: http://unstats.un.org/unsd/snaama/selectionbasicFast.asp IMF, World Economic Outlook Database: http://www.imf.org/external/pubs/ft/weo/2006/02/data/index.aspx Tax Policy Center: http://www.taxpolicycenter.org/TaxFacts/TFDB/TFTemplate.cfm?Docid=477&Topic2id=95 World Tax Database, Office of Tax Policy Research. http://www.wtdb.org/index.html OECD in figures: 1998, 1999 edition. Statistics on the member countries Author: Organization for Economic Co-operation and Development(Paris) World Development Indicator 2005, Washington, DC : IBRD, World Bank. International financial statistics 1970-2006, Washington : International Monetary Fund Taxing wages, 1998-2005, OECD Paris

31

32

Appendix B: Variable Definitions and Sources nnsavi_gni: net national saving rate, which is a ratio of net national saving to gross national income (GNI). Net national savings are equal to gross national savings less the depreciation of physical capital. (World Bank Database, IMF) psavi_gdp: private saving rate, which is measured as the difference between gross national saving rate and gross government saving rate. Gross national saving rate is a ratio of gross national saving to GDP, gross government saving rate is a ratio of government saving to GDP. (World Bank Database, OECD Database) popu_pro: ratio of people between the ages of 24 and 64 to the total population (United Nations Database). rgdp_cap: real GDP per capita measured in 1000 constant 2000 US dollars. GDP per capita is gross domestic product divided by midyear population. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in 1000 constant U.S. dollars. (World Bank Database) gexpen_gdp: ratio of general government expenditure to GDP ， General government expenditure includes all government current expenditures for purchases of goods and services (including compensation of employees). It also includes most expenditure on national defense and security, but excludes government military expenditures that are part of government capital formation. (World Bank Database) vat_rate: statutory value added tax rate, in the countries with multiple rates, it is defined as standard rate applied to goods and services not covered by other especially high or low rates. (OECD Tax Database) apit_rate: average personal income tax rate which is the ratio of tax to average annual gross wage earnings of adult. (OECD Tax Database, World Tax Database) tpit_rate: statutory top marginal personal income tax rate (OECD Tax Database, World Tax Database) tcit_rate: statutory top corporate income tax rate (OECD Tax Database)

33

34

Appendix C: Additional Tables and Figures

Table 1. OECD Country Codes and Year of Introducing VAT

Country Country Code Year (Implemented)

Australia AUS 2000 Austria AUT 1973 Belgium BEL 1971 Canada CAN 1991 Czech Republic CZE 1993 Denmark DNK 1967 Finland FIN 1994 France FRA 1968 Germany DEU 1968 Greece GRC 1987 Hungary HUN 1988 Iceland ISL 1989 Ireland IRL 1972 Italy ITA 1973 Japan JPN 1989 Korea KOR 1977 Luxembourg LUX 1970 Mexico MEX 1980 Netherlands NLD 1969 New Zealand NZL 1986 Norway NOR 1970 Poland POL 1993 Portugal PRT 1986 Slovak Republic SVK 1993 Spain ESP 1986 Sweden SWE 1969 Switzerland CHE 1995 Turkey TUR 1985 United Kingdom GBR 1973

Source: World Bank and Other Sources

35

36

Table 2. Explanatory Variables

Variables μ-σ Mean(μ) μ+σ Std. Deviation(σ)

gexpen_gdp 13.64 18.39 23.14 4.75

rgdp_cap 7.4 17.45 27.5 10.05

popu_pro 62.9 65.93 68.96 3.03

vat_rate 4.79 13.22 21.65 8.43

apit_rate 4.64 3.27 11.18 7.91

tpit_rate 32.21 48.09 63.97 15.88

tcit_rate 25.84 34.96 44.08 9.12

Source: Author’s calculation from raw data Table 3. Analysis of Variation: Cross-Country and Time-Series Variation (In percent of total variation)

Variables Cross-Country Variation Time-Series Variation

nnsavi_gni 67.71 32.29

gexpen_gdp 91.24 8.76

popu_pro 56.91 43.09

rgdp_cap 81.27 18.73

vat_rate 49.67 50.33

apit_rate 68.48 31.52

tpit_rate 39.35 60.65

tcit_rate 44.13 55.87 Source: Author’s calculation from raw data

Table 4. Mean and Standard Deviation of the Variables over Time by Country

country nnsavi_gni psavi_gdp rgdp_cap gexpen_gdp popu_pro vat_rate tpit_rate tcit_rate mean 4.53 20.19 17.57 18.46 66.50 2.86 52.44 38.33Aus st. d 2.35 2.47 3.85 0.58 1.21 4.88 7.19 6.67mean 8.73 23.15 20.18 19.18 66.78 19.20 54.80 38.13Aut st. d 1.40 1.64 4.43 0.63 1.97 1.53 6.04 11.71mean 8.97 22.73 19.02 21.97 66.27 19.43 54.80 41.14Bel st. d 2.16 2.77 3.90 0.83 0.84 1.70 6.04 5.20mean 8.07 21.00 20.17 21.00 68.09 3.80 35.93 40.73Can st. d 2.45 2.27 3.94 1.79 0.85 3.59 10.97 4.34mean 9.50 24.76 5.57 22.36 67.12 10.26 38.71 34.19Cze st. d 2.42 3.93 0.78 0.56 2.78 10.57 8.69 6.98mean 6.28 21.24 25.95 26.00 66.47 22.54 49.62 36.37Dnk st. d 2.13 1.96 4.79 0.83 1.17 3.59 16.40 6.56mean 9.08 25.31 19.66 21.01 67.40 10.06 43.91 30.63Fin st. d 1.35 2.30 4.37 1.84 0.38 11.28 8.81 7.20mean 8.07 21.09 19.49 22.92 65.10 19.29 55.86 40.27Fra st. d 1.80 1.85 3.67 1.24 0.98 0.95 5.11 7.78mean 6.83 20.56 19.72 20.17 67.93 14.26 52.43 45.96Deu st. d 1.36 1.47 3.94 1.12 1.61 1.79 5.00 10.14mean 13.86 23.94 9.51 14.83 66.20 11.77 50.86 40.24Grc st. d 3.67 4.77 1.64 0.91 1.40 8.51 8.85 6.07mean 11.77 21.91 4.26 10.46 67.21 15.71 41.50 22.70Hun st. d 5.72 3.49 0.83 0.59 1.47 12.05 3.07 11.03mean 5.91 17.90 25.84 21.10 64.12 14.34 26.23 29.33Isl st. d 3.99 4.22 4.91 3.22 1.41 12.15 15.20 11.85

37

37

mean 12.88 21.75 17.29 17.06 62.93 21.89 53.85 35.09Irl st. d 3.34 3.13 8.58 2.46 3.90 1.68 10.67 14.59mean 7.62 21.84 16.29 18.43 67.27 17.77 55.72 33.22Ita st. d 2.34 2.55 3.32 1.10 1.73 2.96 11.86 3.92mean 15.80 30.98 32.18 14.74 68.43 2.49 58.64 38.64Jpn st. d 4.06 2.46 7.24 1.63 0.73 2.26 21.01 3.10mean 20.38 30.80 7.76 11.19 68.00 9.43 54.06 29.17Kor st. d 3.01 5.34 4.06 1.22 4.65 1.51 19.39 1.96mean 17.30 31.77 32.74 18.04 67.72 13.03 51.25 34.73Lux st. d 5.55 5.46 12.45 0.79 1.29 2.21 7.50 4.37mean 9.75 20.65 5.34 10.47 57.35 11.71 42.79 35.63Mex st. d 1.85 1.54 0.74 1.11 4.84 5.41 9.91 4.07mean 9.14 24.33 19.59 24.00 67.68 18.26 63.93 38.90Nld st. d 1.27 1.80 4.04 0.78 1.39 0.59 7.92 6.38mean 9.39 17.41 16.64 18.44 65.00 8.36 45.64 37.83Nzl st. d 2.54 0.91 2.54 0.89 1.48 5.89 12.36 6.07mean 12.60 30.00 32.12 20.56 64.43 21.77 36.35 27.90Nor st. d 3.31 3.61 8.84 1.02 0.97 1.99 21.39 0.10mean 7.61 21.68 4.13 18.03 66.79 10.69 37.67 30.75Pol st. d 2.54 6.54 0.97 2.40 1.84 11.03 7.73 9.98mean 8.12 21.98 8.36 17.11 65.70 11.89 53.21 30.46Prt st. d 4.28 5.42 2.35 3.26 1.83 8.31 19.22 9.31mean 13.96 24.81 3.76 21.39 66.32 10.60 34.33 32.90Svk st. d 3.02 2.67 0.60 0.93 2.60 10.78 13.28 11.81mean 9.75 23.20 11.65 16.27 66.35 10.11 52.50 34.83Esp st. d 1.73 1.58 2.93 2.08 2.47 7.28 13.73 0.65mean 6.61 21.98 23.51 27.77 64.39 23.42 51.39 34.33Swe st. d 2.34 2.15 4.45 0.91 0.39 2.64 28.99 9.55

38

38

39

mean 14.42 31.80 31.77 11.00 67.71 3.09 18.85 14.63Che st. d 0.90 2.39 3.67 0.63 1.06 3.87 12.72 4.71mean 14.16 19.71 2.58 11.64 61.63 10.20 51.07 35.53Tur st. d 3.25 3.52 0.54 2.15 4.15 7.58 11.54 7.63mean 3.66 16.08 20.70 20.26 64.98 15.29 51.86 38.23Gbr st. d 1.66 1.41 4.84 1.03 0.86 3.40 16.66 9.66

Source: Author’s calculation from raw data

39

Table 5a: Cross-sectional Results Dependent variable: Net national saving rate

Variable Column 1 Column 2 Column 3 Column 4 Column 5 Column 6

gexpen_gdp

-0.481* -0.597**

(2.6) -0.472** (2.21)

-0.563** (2.14)

-0.507** -0.664** (2.58) (2.24) (2.5)

rgdp_cap 0.099 0.049

(0.65) 0.099

(1.39) 0.263**

(3.05) 0.143** 0.276**

(1.42) (2.27) (3.25)

popu_pro

0.466 0.407 (1.17)

0.454 (1.44)

0.659 (1.56)

0.639 0.761* (1.66) (1.51) (1.82)

vat_rate 0.187 0.083

(0.51) 0.179

(1.19) 0.301

(1.45) 0.182 0.418

(1.53) (0.87) (1.52)

apit_rate

-0.237** (2.5) - -0.236**

(2.43) -0.189* (1.72) - 0.205*

(1.91)

tpit_rate -

0.028 (0.27)

0.008 (0.09) - -0.108 -0.127

(0.8) (1.45)

tcit_rate

-0.018 -0.058

(0.33) -0.028 (0.18)

0.083 (0.48)

0.286 0.233 (0.17) (1.51) (1.17)

F-statistic 2.40* 0.27 1.72 1.38 0.84 1.6

R-sq 0.5428 0.4145 0.5429 0.4219 0.3833 0.4747

Num.of obs 29 29 29 29 29 29

40

40

41

Table 5b: Cross-sectional Results Note: Regressions are estimated using the average values of all variables through 1975–2005 (apit_rate just through 1995-2005) for 29 OECD countries in first three columns and the cross-section data of the year 2005 in the last three columns. Absolute t-values are in parentheses. **(*) indicates significance at the 5(10) percent level, “-” represents variables not included in analysis. F-statisticg is for test of the joint significance of all included tax rates

Dependent variable: Private saving rate

Variable Column 1 Column 2 Column 3 Column 4 Column 5 Column 6

gexpen_gdp -0.186* (1.83)

-0.262* (1.79)

-0.121* (1.79)

-0.516* (1.63)

-0.717** (2.23)

-0.655** (2.07)

rgdp_cap 0.223** (3.27)

0.168** (2.21)

0.223** (3.23)

0.406** (3.89)

0.374** (3.81)

0.423** (4.19)

popu_pro 0.743** (2.72)

0.602* (1.72)

0.654** (2.15)

1.11** (2.20)

1.31** (2.57)

1.25** (2.53)

vat_rate 0.136 (1.13)

-0.0298 (0.18)

0.079 (0.54)

0.244 (0.97)

0.305 (1.18)

0.404 (1.56)

apit_rate -0.271** (2.93) - -0.265**

(2.82) -0.167 (1.27) - -0.191

(1.49)

tpit_rate - 0.837 (0.82)

0.062 (0.69) - -0.156

(1.48) 0.173

(1.67)

tcit_rate -0.161 (1.59)

0.274 (1.55)

-0.24 (1.56)

-0.06 (0.29)

0.254 (1.05)

0.265 (1.12)

F-statisticg 3.89** 0.98 2.96** 0.71 0.90 1.27 R-sq 0.6225 0.4907 0.508 0.5011 0.5129 0.5597 Num.of obs 29 29 29 29 29 29

41

Table 6a: Panel Regression Results

Dependent variable: Net national saving rate

Variables OLS First Difference a One-way FE Two-way FE

gexpen_gdp -0.646** (7.89)

-1.031* (2.02)

-0.738** (4.97)

-0.617** (4.34)

rgdp_cap 0.139** (4.33)

1.923** (3.36)

0.137** (2.34)

0.379** (4.76)

popu_pro 0.194*

（1.81） 0.503

（0.61） 0.037

（0.26） 0.405**

（2.66）

vat_rate 0.0347 (0.81)

-0.0518 (0.24)

-0.00418 (0.08)

0.05 (0.85)

tpit_rate 0.0542** (2.48)

0.0863* (1.84)

0.0546** (2.46)

0.031 (1.38)

tcit_rate 0.0359

(0.90) 0.0159

(0.18) 0.0762**

(2.34) 0.071**

(2.12)

R-sq 0.346 0.278 0.322 0.235

Num.of obs 173 28 173 173

42

Table 6b: Panel Regression Results

Dependent variable: Private saving rate

Variables OLS First Difference a One-way FE Two-way FE

gexpen_gdp -0.428** (4.57)

-1.569** (2.25)

-0.266* (1.97)

-0.308* (1.75)

rgdp_cap 0.196** (5.1)

0.536* (1.93)

0.0659 (0.78)

0.258** (2.13)

popu_pro 0.452**

（3.61） 0.975**

（2.23） 0.351**

（2.22） 0.530**

（3.10）

vat_rate -0.0336 (0.68)

-0.0276 (0.11)

-0.143** (2.19)

-0.106 (1.41)

tpit_rate 0.0484* (1.93)

0.0278 (0.29)

0.003 (0.11)

0.0039 (0.14)

tcit_rate 0.0187

(0.41) 0.0738

(0.60) 0.118**

(3.03) 0.139**

(3.38)

R-sq 0.292 0.289 0.140 0.243

Num.of obs 174 28 174 174

Note: Regressions are estimated using data averaged over the 1975-1979, 1980-1984, 1985-1989, 1990-1994, 1995-1999, 2000-2004 periods for the test years 1975, 1980, 1985, 1990, 1995, and 2000 respectively; test year 2005 is the single year 2005 itself. First Difference a represents regression estimated using the difference between the year 1995 and 2005. Absolute t-values are in parentheses. ** (*) indicates significance at the 5(10) percent level.

43

Figure 1a. Net National Saving Rate by Country

05

1015

20M

ean

of N

et N

atio

nal S

avin

g R

ate

GbrAus Isl DnkSweDeuPol Ita FraCan Prt Aut Bel Fin Nld Nzl CzeEspMexHunNor Irl GrcSvk TurCheJpn Lux Kor

Net National Saving Rate by Country

Figure 1b. Private Saving Rate by Country

010

2030

Mea

n of

Priv

ate

Savi

ng R

ate

Gbr Nzl Isl TurAusDeuMexCanFraDnkPol Irl Ita HunSwePrt Bel Aut EspGrc NldCzeSvk Fin Nor Kor JpnLuxChe

Private Saving Rate by Country

Source: Author’s calculation from raw data

44

Figure 2. Private Saving Rate and Government Surplus or Deficit Rate by

Country

-2

00

2040

-20

020

40-2

00

2040

-20

020

40-2

00

2040

1970 1980 1990 2000 2010

1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010

Aus Aut Bel Can Cze Dnk

Fin Fra Deu Grc Hun Isl

Irl Ita Jpn Kor Lux Mex

Nld Nzl Nor Pol Prt Svk

Esp Swe Che Tur Gbr

private saving rate government surplus or deficit rate

Rat

e

Year

Graphs by Country Code from World Bank

Source: Author’s calculation from raw data

45

Figure 3. Time Trend: Net National Saving Rate and Private Saving Rate by Country

010

2030

400

1020

3040

010

2030

400

1020

3040

010

2030

40

1970 1980 1990 2000 2010

1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010

Aus Aut Bel Can Cze Dnk

Fin Fra Deu Grc Hun Isl

Irl Ita Jpn Kor Lux Mex

Nld Nzl Nor Pol Prt Svk

Esp Swe Che Tur Gbr

net national saving rate private saving rate

Sav

ing

Rat

e

Year

Graphs by Country Code from World Bank

Source: Author’s calculation from raw data

46

Figure 4. Tax Systems by Country

020

4060

Sta

tuto

ry T

ax R

ate

JpnAusCheCanNzl Kor Fin EspTurCzeSvk PolMexGrc Prt LuxDeu Isl GbrHun Ita Nld Aut Fra Bel Nor Irl DnkSwe

Tax Sytem by Country

mean of vat_rate mean of tpit_ratemean of tcit_rate

Source: Author’s calculation from raw data collected

47

Figure 5a. Time Trend: Value-added Tax Rate by Country

010

2030

010

2030

010

2030

010

2030

010

2030

1970 1980 1990 2000 2010

1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010

Aus Aut Bel Can Cze Dnk

Fin Fra Deu Grc Hun Isl

Irl Ita Jpn Kor Lux Mex

Nld Nzl Nor Pol Prt Svk

Esp Swe Che Tur Gbr

Sta

tuto

ry V

alue

-add

ed T

ax R

ate

YearGraphs by Country Code from World Bank

Source: Author’s calculation from raw data collected

48

Figure 5b. Time Trend: Top Personal Income Tax Rate by Country

050

100

050

100

050

100

050

100

050

100

1970 1980 1990 2000 2010

1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010

Aus Aut Bel Can Cze Dnk

Fin Fra Deu Grc Hun Isl

Irl Ita Jpn Kor Lux Mex

Nld Nzl Nor Pol Prt Svk

Esp Swe Che Tur Gbr

Top

Mar

gina

l Per

sona

l Inc

ome

Tax

Rat

e

YearGraphs by Country Code from World Bank

Source: Author’s calculation from raw data collected

49

Figure 5c. Time Trend: Top Corporate Income Tax Rate by Country

020

4060

020

4060

020

4060

020

4060

020

4060

1970 1980 1990 2000 2010

1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010

Aus Aut Bel Can Cze Dnk

Fin Fra Deu Grc Hun Isl

Irl Ita Jpn Kor Lux Mex

Nld Nzl Nor Pol Prt Svk

Esp Swe Che Tur Gbr

Top

Cor

pora

te In

com

e Ta

x R

ate

YearGraphs by Country Code from World Bank

Source: Author’s calculation from raw data collected

50

Figure 6. Aggregate Time Trend by Main Variables

020

4060

80R

ate

1970 1980 1990 2000 2010Year

net national saving rate private saving ratevat_rate tpit_ratetcit_rate

Aggregate Time Trend of OECD Countries

Source: Author’s calculation from raw data collected

51

52

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