The Corporate Veil Revisited

Abstract

The need to boost the saving rate in the U.S. brought renewed attention to the corporate veil topic. If the mere fact of carrying wealth through the corporate threshold can affect private saving and personal consumption, then tax changes, as the 1986 tax reform, may have very deleterious effects. The issue in question is whether a $1 reduction in corporate saving, given constant wealth, is matched exactly by a $1 increase in personal saving, leaving private saving and personal consumption unchanged. The literature is surveyed and one extension using aggregate data is carried out. Unfortunately, no clear cut answer can be obtained with the use of aggregate data due to theoretical and empirical problems. A proposal to further investigate the topic using micro data is outlined.