Public Economics.

• Position: Brief Article

The NBER's Program on Public Economics, directed by James M. Poterba of MIT, met in Cambridge on April 6. The following four papers were presented and discussed:

Leora Friedberg, NBER and University of Virginia, and Anthony Webb, University of California, San Diego, "The Impact of 401(k) Plans on Retirement"

Discussant: Andrew Samwick, NBER and Dartmouth College

Mark H. Lang and Edward L. Maydew, University of North Carolina, and Douglas A.

Schackleford, NBER and University of North Carolina, "Bringing Down the Other Berlin Wall: Germany's Repeal of the Corporate Capital Gains Tax"

Discussant: William M. Gentry, NBER and Columbia University

Douglas Holtz-Eakin, NBER and Syracuse University, and Donald Marples, Syracuse University, "Distortion Costs of Taxing Wealth Accumulation: Income versus Estate Taxes" (NBER Working Paper No. 8261)

Discussant: William Gale, Brookings Institution

2. Douglas Bernheim and Antonio Rangel, NBER and Stanford University, and Luis Rayo, Stanford University, "A Theory of Legislative Policymaking: Part 1, Basic Institutions"

Discussant: Stephen Coate, NBER and Cornell University

In 1993, nearly 40 million people were covered by a 401(k) plan, up from about 7 million in 1983. Previous research showed that the spread of defined benefit plans with sharp agerelated incentives, first discouraging and later encouraging retirement, contributed to the early retirement trend of past decades. Defined contribution plans differ along several dimensions especially in their smooth rate of pension wealth accrual. Friedberg and Webb use data from the Health and Retirement Study to show that retirement patterns have begun to change as defined contribution plans have spread. Their estimates indicate that the financial incentives in defined benefit pensions lead people to retire almost two years earlier on average, compared to people with defined contribution plans.

Faced with pressure from increased global competition and capital mobility, Germany's government made a surprise announcement in December 1999 that it would repeal the longstanding capital gains tax on sales of corporate cross-holdings. The repeal was hailed as a revolutionary step toward breaking up Germany's complex web of cross-ownership. When the changes become effective in 2002, Germany will move from having one of the most punitive taxes on corporate capital gains to having the smallest among major industrial countries. Lang, Maydew, and Shackleford use Germany...