| 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. |
