The rationale for giving tax cuts to the income brackets is that this money is then invested in new businesses which increases jobs.

If the saved money is being saved/invested instead of being spent, this would increase the amount of lending capital available and decrease interest rates.

Given that changing tax rates is a distinct and frequent occurrence around the world in a variety of contexts, there must be a lot of data available to perform a regression on.

Do tax cuts to higher income brackets cause a subsequent lowering of interest rates?

  • $\begingroup$ You haven't given enough information for anyone to answer this question. If you cut (current) taxes on the rich, you have to do (at least) one of several things: Cut current spending, cut future spending, raise current taxes on the non-rich, raise future taxes on the non-rich, raise future taxes on the rich. The answer to your question depends very much on what mix of these you choose (and on many other details, such as whether the spending you cut is useful or wasteful, etc). $\endgroup$ Oct 24, 2015 at 22:22

1 Answer 1


You may want to look at the literature of the effects of taxation on savings. A survey is given in: Sandmo. A. (1985) The effects of taxation on savings and risk-taking, in: Auerbach & Feldstein, Handbook of Public Economics, Elsevier.

In this survey, the (simpler) problem of the overall effect of taxation on saving behavior is analyzed. A change in tax progression is much more subtle and harder to measure.

The survey states the problems associated with estimation of this simpler problem and the author comes to the conclusion that the empirical results are inconclusive. Since then there may have been some move in the literature, however.


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