Taxation and Saving: A Behavioral Perspective

In this paper, I argue that LCH has had an excessive influence on the design, conceptualization, and interpretation of theoretical and empirical studies of the relation between taxation and saving. While other behavioral hypotheses are mentioned in the literature with increasing frequency, this usually occurs in the course of explaining anomalous results, rather than in the context of evaluating policies, designing empirical strategies, or interpreting results that do not appear to be anomalous from a life-cycle perspective. Even in the absence of an intellectually satisfying set of alternative organizing principles, it is important to be aware of the potential for reaching misleading conclusions by imposing potentially false structure on the data.