Genuine saving and the social cost of taxation

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 calc...

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Bibliographic Details
Published in:Journal of public economics 2012-02, Vol.96 (1), p.211-217
Main Authors: Aronsson, Thomas, Cialani, Catia, Löfgren, Karl-Gustaf
Format: Article
Language:English
Subjects:
Bias
Business and economics
Economics
Ekonomi
Investment
Measurement
Nationalekonomi
Public debt
SAMHÄLLSVETENSKAP
Saving
Savings
Social costs
SOCIAL SCIENCES
Sustainable development
Taxation
Welfare change
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Summary: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. ► Genuine saving is typically calculated as if the tax system is non-distortionary. ► In a second best economy, the marginal excess burden affects genuine saving. ► The conventional measure of genuine saving may give incorrect information about local sustainable development.
ISSN:0047-2727
1879-2316
1879-2316
DOI:10.1016/j.jpubeco.2011.10.002