College Scholarship Rules and Private Saving

Martin S. Feldstein

American Economic Review, 1995, vol. 85, issue 3, pages 552-66

Abstract: This paper examines the effect of existing college scholarship rules on the incentive to save. The analysis shows that families that are eligible for college scholarships face 'education tax rates' on capital income of between 22 percent and 47 percent in addition to regular federal and state income taxes. The empirical analysis developed here, based on the 1986 Survey of Consumer Finances, implies that these high tax rates have a powerful adverse effect on the accumulation of financial assets. Copyright 1995 by American Economic Association.

Date: 1995
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