Genuine Saving and the Social Cost of Taxation

Thomas Aronsson (), Catia Cialani () and Karl-Gustaf Löfgren ()
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Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Catia Cialani: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Karl-Gustaf Löfgren: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 826, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: Following the 1987 report by The World Commission on Environment and Development, the genuine saving has come to play a key role in the context of sustainable development, and the World Bank regularly publishes numbers for genuine saving on a national basis. However, these numbers are typically calculated as if the tax system is non-distortionary. This paper presents an analogue to genuine saving in a second best economy, where the government raises revenue by means of distortionary taxation. We show how the social cost of public debt, which depends on the marginal excess burden, ought to be reflected in the genuine saving. By presenting calculations for Greece, Japan, Portugal, U.K., U.S. and OECD-average, we also show that the numbers published by the World Bank are likely to be biased and may even give incorrect information as to whether the economy is locally sustainable.

Keywords: Welfare change; investment; saving; taxation (search for similar items in EconPapers)
JEL-codes: D60 H21 I31 Q56 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2011-05-17
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