growth in GDP and a level of job creation too low to overcome satisfactorily the job loss associated with corporate and industry restructuring. Saving and investment rates need to be raised to levels that approximate those in the other advanced industrial economies. Reduction of the federal deficit is an important component in increasing net saving. To a first approximation, eliminating the federal deficit solves about half the saving problem. To boost saving further and raise the rate of investment in the long term will require a series of tax and regulatory changes and shifts in corporate practices and managerial incentives.
Realistically, it will require 5 to 10 years to establish a new saving and investment trajectory because of the kinds of large structural changes that are needed. To be acceptable, both economically and politically, they need to be discussed, agreed on, and phased in gradually. The board intends this statement and the analysis in the accompanying volume to contribute to a process that leads to broad agreement on the longer-term objectives for the economy.
REFERENCES
Andrews, W. 1974. A consumption type or cash flow personal income tax. Harvard Law Review 87:1113-88.
Boskin, M.J., and L.J. Lau. 1992. Capital, technology, and economic growth. Pp.17-55 in Technology and the Wealth of Nations, N. Rosenberg, R. Landau, and D. Mowery, eds. Stanford, California: Stanford University Press.
Bradford, D. 1980. The case for a personal consumption tax. Pp. 75-112 in What Should Be Taxed: Income or Expenditure?, J. Pechman, ed. Washington, D.C.: Brookings Institution.
Congressional Budget Office. 1993. Assessing the Decline in the National Saving Rate. Washington, D.C.: Government Printing Office.
Congressional Budget Office. 1994. Reducing the Deficit: Spending and Revenue Options. Washington, D.C.: Government Printing Office.
Delong, J.B., and L.H. Summers. 1991. Equipment investment and economic growth. Quarterly Journal of Economics 106:445-502.
Frankel, J. In press. The evolving Japanese financial system and the cost of capital. Chapter 9 in Restructuring Japan’s Financial Markets, I. Walter, ed. Baldwinsville, New York: Irwin Press.
International Bank Credit Analyst. 1994, 32(6):8.
Jorgenson, D.W., and R. Laudau, eds. 1993. Tax Reform and the Cost of Capital: An International Comparison. Washington, D.C.: Brookings Institution.
Jorgenson, D.W., and K.-Y. Yun. 1990. Tax reform and U.S. economic growth. Journal of Politics 98(5):151-93.
Jorgenson, D.W., F.M. Gollop, and B.M. Fraumeni. 1987. Productivity and U.S. Economic Growth. Cambridge, Massachusetts: Harvard University Press.
Lau, L., and J.-I. Kim. 1992. The Importance of Embodied Technical Progress: Some Empirical Evidence from the Group-of-Five Countries. Stanford, California: Center for Economic Policy Research, Stanford University.
McCauley, R., and S. Zimmer. 1989. Explaining international differences in the cost of capital. Federal Reserve Bank of New York Quarterly Review (Summer):7-28.
National Academy of Engineering. 1993. Corporate Time Horizons and Technology Investments. Washington, D.C.: National Academy Press.
Phelps, E. 1993. Structural Slumps: the Modern Theory of Unemployment, Interest, and Assets. Cambridge, Massachusetts: Harvard University Press.
Poterba, J.M. 1991. Comparing the cost of capital in the United States and Japan: a survey of methods. Federal Reserve Bank of New York Quarterly Review (Winter):20-32.
Poterba, J.M. 1992. Taxation and housing: old questions, new answers. American Economic Review 82(2):237-42.
Poterba, J.M., ed. 1994. International Comparisons of Household Saving Behavior. Chicago: University of Chicago Press.
Poterba, J.M., and K. French. 1991. Investor behavior and international diversification. American Economic Review 8(2):222-26.
Poterba, J.M., and L.H. Summers. 1993. Time Horizons of U.S. and Foreign Firms: Evidence from a Sample Survey . Mimeo, Department of Economics, Massachusetts Institute of Technology.
Sahlman, W. In press. Insights from the American venture capital organization, in Capital Choices: Changing the Way America Invests in Industry, M. Porter, ed. Boston: Harvard Business School Press.
U.S. Department of Treasury. 1992. Integration of the Individual and Corporate Tax Systems: Taxing Business Income Once. Washington, D.C.: Government Printing office.
