Research on capital formation has long been a major focus of studies sponsored by the National Bureau of Economic Research because of the crucial role of capital accumulation in the process of economic growth. The papers in this volume examine the influence of taxes on capital formation, with specific focus on the determinants of saving and the process of investment in plant and equipment.

Economists have long recognized the importance of capital accumulation for productivity and economic growth. The National Bureau of Economic Research is currently engaged in a study of the relationship between such accumulation and taxation policies, with particular focus on saving, risk-taking, and corporate investment in the United States and abroad. The papers presented in Taxes and Capital Formation are accessible, nontechnical summaries of fourteen individual research projects within that study. Complete technical reports on this research are published in a separate volume, The Effects of Taxation on Capital Accumulation, also edited by Martin Feldstein. By addressing some of the most critical policy issues of the day with a minimum of economic jargon, Taxes and Capital Formation makes the results of Bureau research available to a wide audience of policy officials and staff as well as to members of the business community. The volume should also prove useful for courses in public policy, business, and law. In keeping with Bureau tradition, the papers do not contain policy recommendations; instead, they promote a better understanding of how the economy works and the effects of specific policies on particular aspects of the economy.

The Japanese population is aging faster than any other in the world. The per centage of Japan's population aged 65 and above was only 7.1% in 1970,but just 30 years later, in 2000, it reached 17.2%. A declining birth rate and a rising average life expectancy will continue to push this trend further. This situation is causing serious problems for Japanese society.Structural reforms, especially tax and social security reforms, to accommodate this drastic demographic change have become an urgent policy issue. The purpose of this book is to establish guidelines for tax and social security reforms in Japan in terms that are both efficient and equitable. In this study, an extended life-cycle general equilibrium model is employed to rigorously take account of the rapidly aging Japanese population. The simulation approach adopted in our analysis permits us to calculate the effects of alternative policy packages on capital accumulation and economic welfare. This enables us to make proposals for concrete economic policies.

Inflation, Tax Rules, and Capital Formation brings together fourteen papers that show the importance of the interaction between tax rules and monetary policy. Based on theoretical and empirical research, these papers emphasize the importance of including explicit specifications of the tax system in such study.

In Pakistan, at least, changes in corporate tax rates are probably better instruments for promoting capital promoting capital formation than are increased investment tax credits. Increasing the investment tax credit stimulates more capital formation than does decreasing corporate taxes, but the tax credits also increase inflation.