Discussion Paper No. 905

THE LIFE AND WORK
OF MARTIN STUART (“MARTY”)
FELDSTEINCharles Yuji Horioka

July 2014
Revised March 2015

The Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan

THE LIFE AND WORK OF MARTIN STUART (“MARTY”)
FELDSTEINCharles Yuji Horioka
Asian Growth Research Institute, Kitakyushu, Fukuoka, Japan; School of
Economics, University of the Philippines, Diliman, Quezon City, Philippines;
Institute of Social and Economic Research, Osaka University, Ibaraki, Osaka,
Japan; and National Bureau of Economic Research, Cambridge, Massachusetts,
U.S.A.
July 2014; revised March 2015
Abstract
Martin Stuart (“Marty”) Feldstein, currently George F. Baker Professor of
Economics at Harvard University and President Emeritus of the National
Bureau of Economic Research, Inc. (NBER), is an American economist who
has made important contributions to public finance, macroeconomics,
international economics, social insurance, health economics, the economics ofnational security, and many other fields of economics, trained a large number ofprominent economists, served as President of the National Bureau of Economic
Research for some thirty years, and served as President Ronald Reagan’s chief
economic advisor.
Keywords: Capital accumulation; capital gains tax; charitable giving; Councilof Economic Advisors; deadweight loss; economics of national security; euro;
European Monetary Union; Feldstein, M.: Feldstein-Horioka paradox;
Feldstein-Horioka puzzle; health economics; health insurance; home bias;
inflation; international capital flows; international capital mobility; investment;
National Bureau of Economic Research; pensions; public finance; public
pensions; saving; social insurance; social security; tax expenditures; taxation;
unemployment compensation; unemployment insurance
Journal of Economic Literature Classification Codes: B31, D14, D22, E21,
F21, F32, F33, F52, H20, H55, I13, J65*Asian Growth Research Institute, 11-4, Ohtemachi, Kokurakita-ku,
Kitakyushu City, Fukuoka Prefecture 803-0814, JAPAN. Telephone: 81-93583-6202. Facsimile: 81-93-583-4602. E-mail: horioka@iser.osaka-u.ac.jp.
Forthcoming in Steven N. Durlauf and Lawrence E. Blume, eds., The New
Palgrave Dictionary of Economics, Online Edition (Palgrave Macmillan, 2015).

Introduction
Martin Stuart (“Marty”) Feldstein was born in New York City on November 25,
1939. He graduated summa cum laude from Harvard College with a major in
economics in 1961, and even though he was admitted by the Harvard Medical
School, he opted to study at the University of Oxford on a Fulbright scholarship.
He received a B.Litt. in 1963 and a Ph.D. in 1967, both in economics, from
Oxford, but combined his interest in medicine and economics by writing adoctoral dissertation about how hospital costs could be reduced in agovernment-run health system (the U.K.’s National Health Service). He was aFellow of Nuffield College, Oxford, from 1964 until 1967 before returning to
the United States and to his alma mater. He became an Assistant Professor of
Economics at Harvard University in 1967, and only two years later at the age of28, he was granted tenure and promoted to full professor, becoming one of theyoungest full professors in Harvard’s history.
Feldstein was an immensely popular teacher, teaching the introductory course ineconomics, which attracted as many as a 1000 students, for 21 years, teaching
graduate courses in macroeconomics, public finance, the economics of national
security, etc., and training a huge cadre of students such as Jeffrey D. Sachs andLawrence H. Summers, who have gone on to pursue illustrious careers inacademia and government.
Feldstein spent virtually his entire career at Harvard and is currently George F.
Baker Professor of Economics there, but in addition to being an academic,
Feldstein served as President of the National Bureau of Economic Research(NBER) for some 30 years from 1977 until 2008 (except in 1982-84), building
it up to its current status as the premier U.S.-based economic researchorganization.
Feldstein has received honorary doctorates from several universities and is an
Honorary Fellow of Nuffield College Oxford, a Corresponding Fellow of the
British Academy, and a Fellow of the Econometric Society and the National
Association for Business Economics.
Moreover, Feldstein has also made important contributions to economic
policymaking as Chair of President Ronald Reagan’s Council of Economic
Advisors from 1982 until 1984, a member of President George W. Bush’s
Foreign Intelligence Advisory Board from 2007 until 2009, and a member of
President Barack Obama’s Economic Recovery Advisory Board from 20091

until 2011.
Feldstein currently serves on the Board of Directors of the Council on Foreign
Relations, the Trilateral Commission, the Group of 30 (a Washington-based
financial advisory body), and the National Committee on United States-China
Relations, serves on the Council of Academic Advisors of the American
Enterprise Institute, and was formerly on the Boards of Directors of a number ofmajor corporations including AIG, Eli Lilly, and JP Morgan.
Well-known for his ability to explain economic concepts clearly, Feldstein alsofrequently writes OpEd pieces for the Wall Street Journal and other newspapers
and makes policy proposals about a variety of economic issues. In past years,
he regularly co-authored such pieces with his economist wife Kathleen, whoreceived a Ph.D. from the Massachusetts Institute of Technology (MIT).
With respect to Feldstein’s research, he started out as a specialist in healtheconomics, the field of his doctoral dissertation, but his interests graduallybroadened to include social insurance more generally, public finance,
macroeconomics, international economics, the European Monetary Union, theChinese economy, the economics of national security, etc. Feldstein has written
close to 400 scholarly articles on a broad range of topics, many of which show,
via careful theoretical and empirical analysis, that government tax and transfer
policies have important impacts on the economic behaviour of households andfirms--in other words that households and firms respond to incentives anddisincentives--and that the impact of tax and transfer policies cannot be gauged
accurately unless one takes account of the behavioural responses that they
induce.
In recognition of his impressive research achievements, Feldstein was awarded
the John Bates Clark Medal of the American Economic Association (AEA),
which at the time was awarded every two years to the economist under the ageof 40 who is judged to have made the greatest contribution to economic science,in 1977, and he was elected President of the American Economic Association in2004.
In 2007, Feldstein received the Bradley Prize from the Lynde and Harry
Bradley Foundation; in 2011, he was included in the 50 Most Influential
ranking of Bloomberg Markets magazine because, despite being a Republican
himself, his staunch advocacy of scaling back tax expenditures (government
spending through the tax code—i.e., tax exemptions, deductions, or credits toselect groups or specific activities) incurred the wrath of Republicans but
garnered the widespread support of Democrats (see Homan (2011) for moredetails); and in 2012, he received the SIEPR Prize for Contributions to2

Economic Policy from the Stanford Institute for Economic Policy Research(SIEPR) of Stanford University.
Feldstein is one of the twelve most influential living economists in the world
according to IDEAS/RePEc. He has been regarded as a perennial favorite to
win the Nobel Prize in Economic Sciences and was named a Thomson Reuters
Citation Laureate (many of whom have gone on to win Nobel Prizes) in 2008.
Social Insurance
Feldstein has made significant contributions to a broad range of fields ineconomics, but one area in which he has truly revolutionized the thinking of
economists and policymakers alike is in the area of social insurance (seeFeldstein (2005b) for a useful overview). Feldstein showed that, while existingsocial insurance programs protect individuals from a variety of risks, they also
distort individuals’ behaviour in a variety of ways, thereby lowering saving,
economic growth, and welfare. For example, unemployment insurance protects
individuals from the loss of income during unemployment spells but at the sametime causes individuals to search for new jobs for too long, induces them tosave less, and encourages them to take jobs that have a greater likelihood ofseasonal and/or cyclical layoffs. Social security (public old-age pensions)protects individuals from poverty during old age and longevity risk but at thesame time induces individuals to reduce their saving and to retire too early.
Health insurance protects individuals from the risk of being unable to afford
needed medical care but at the same time induces them to consume too much
health care, to take inadequate precautions with their health, and to save too
little because they know that they will not have to bear the full cost of healthcare themselves.
Feldstein has done extensive research to show that social insurance programs
have indeed distorted individuals’ behaviour in the expected ways. For example,
Feldstein (1976b, 1978a) shows that unemployment insurance substantially
increases the amount of temporary layoff unemployment, while Feldstein andPoterba (1984) show that the higher is the replacement rate of unemployment
benefits, the higher is the reservation wage of unemployed workers, meaningthat the longer will be the duration of unemployment.
Turning to Feldstein’s work on the impact of social security (see Feldstein and
Liebman (2002b) for a useful overview), Feldstein (1974), a very well-known
article, analyses theoretically and empirically the impact of social security on
household consumption and saving behaviour. As Feldstein notes, there are atleast two offsetting ways in which a social security system can affect household
3saving. On the one hand, the introduction of a social security system will causehouseholds to not feel as much need to save for retirement as they did before theintroduction of such a system (the wealth replacement effect). On the other
hand, the introduction of a social security system will induce households toretire earlier, lengthen their retirement span, and make it necessary for them tosave more than before (the induced retirement effect). Thus, it is not clear apriori if the introduction of a social security system will induce households tosave more or less than before. However, Feldstein has shown using a variety ofdata that the wealth displacement effect dominates the induced retirement effect,as a result of which the net effect of the public pension system is to lower
household saving and capital accumulation. For example, Feldstein (1974,
1982c, and 1996b) shows using time-series data for the United States that social
security has substantially increased personal consumption (and by implication
has substantially reduced personal saving).i Similarly, Feldstein (1977, 1980)
estimates the magnitudes of both the wealth displacement effect and the induced
retirement effect using cross-country data and shows that the former is larger inabsolute magnitude than the latter, as a result of which social security reduces
private saving, on balance.
Turning to Feldstein’s work on health insurance (see Feldstein (1995c) for a
useful overview), Feldstein (1970) finds that the price of physicians’ servicesrose much faster than the consumer price index after the introduction of
Medicare and Medicaid in 1966, suggesting that these health insurance
programs increased the demand for physicians’ services, thereby bidding up theprice. Similarly, Feldstein (1973) estimates a demand function for health careusing time series data on individual states of the United States and finds that
health insurance has a significant impact on the demand for health care.
Moreover, after establishing that social insurance programs have indeed
distorted the behaviour of individuals as theory would predict, Feldstein has
then gone on to make recommendations about how to reform these programs sothat they continue to protect individuals from the risks they are designed toprotect them from while at the same alleviating the distortions they cause
including the reductions in saving that they cause. For example, Feldstein
proposes reforming the current unemployment insurance system by making
benefits taxable (as they are now, due in large part to Feldstein’s own efforts),
reducing replacement rates, and/or (better yet) introducing a more fundamental
reform involving the introduction of unemployment insurance saving accounts
earmarked to pay benefits when unemployment occurs (see, for example,
Feldstein and Altman (2007)).
Similarly, Feldstein proposes a transition from the current pay-as-you-go social
security system to a mixed system with a substantial investment-based (funded)4

component (see, for example, Feldstein (1995a, 1996a, 1997b, 1998, 2005c, and2009a), Feldstein and Samwick (1997, 1998a, 1998b, and 2002), Feldstein and
Ranguelova (2001), and Feldstein and Liebman (2002a)). Economists havetraditionally felt that it is difficult, if not impossible, to make the transition froma pay-as-you-go social security system to a mixed system or a fully fundedsystem because one generation will have to bear a so-called “double burden,”
financing the social security benefits of its parents’ generation as well as its own
benefits, but Feldstein shows in the aforementioned papers that this is not an
insurmountable problem.
Finally, Feldstein proposes a transition from the current pay-as-you-go
comprehensive low-deductible low-coinsurance Medicare system (the U.S.
federal health care program for those over the age of 65) to a health savings
account (HSA) system that creates strong incentives to choose high deductibles
and high coinsurance (see, for example, Feldstein (1971, 1999a), Feldstein and
Gruber (1995), and Feldstein and Samwick (1997)). Tax-advantaged healthsavings accounts have been available to taxpayers who have a high-deductible
health plan (HDHP) since 2003, and these accounts could provide a model for
Medicare reform.
A related paper (Feldstein (1995b)) pertains to college scholarships, which are
not a form of social insurance narrowly defined but which have similar
distortive effects on individual behaviour. Feldstein (1995b) shows that college
scholarships are beneficial in that they enable the children of low-income
families to attend college but distortive in that expected parental contributions
are higher and the amounts of financial assistance lower if parental assets arehigher. This implies a hefty “education tax rate” on saving and strongly
discourages parents from saving.
Public Finance
Another major contribution Feldstein has made to economics is in the area of
public finance. Feldstein has shown in a long series of papers that taxes distortthe behaviour of households and firms, causing substantial deadweight losses,
and that one needs to take full account of the behavioural response ofhouseholds and firms to tax changes when estimating their impact. For example,
Feldstein (1995a, 1995d, 1999b) estimated the impact of the Tax Reform Act of1986 using the compensated elasticity of taxable income with respect tochanges in tax rates, which allows one to take account of the fact that tax
changes would affect not only labour supply but also the forms of compensation,
the investment of assets, and the extent of spending on tax-deductible activities(see Feldstein and Feenberg (1996) for a similar analysis of the 1993 tax rateincreases).
5

Feldstein has also argued that tax policies have had the effect of depressing
saving and investment, thereby causing a substantial deadweight loss andlowering economic growth (see Feldstein (1995e) for a useful survey). We
have already discussed the saving-depressing effects of various social insurance
programs, but the tax system also has the effect of depressing saving. The
combination of the corporate income tax and personal income taxes on interest,
dividends, and capital gains creates a substantial wedge between the pre-tax
marginal product of capital and the net return received by individual savers (i.e.,
it raises the effective tax rate on capital income), which depresses saving,
investment, and economic growth.
Feldstein (1976a, 1978b, 1978c, 1995e) points out that, when doing a welfare
analysis, the deadweight loss arising from the current tax system must becompared to the deadweight loss of the tax system that replaces it, and Feldstein(1995e) shows that a shift from the current income tax to a consumption tax or alabour income tax will increase national saving and reduce the deadweight lossof the overall tax system.
Feldstein has also analysed the distortionary effects of specific taxes. For
example, Feldstein and Yitzhaki (1978) show that capital gains taxes havediscouraged the sale of equities and reduced tax revenue via the lock-in effectand that cutting the capital gains tax would increase tax revenues byencouraging investors to realize their capital gains.
As another example, Feldstein (1981) shows that the use of the "historic cost"
method of depreciation for tax purposes implies that higher inflation rates
reduce the real value of future depreciation deductions and therefore raise thereal net cost of investment, that the rise in the real net cost of investment can besubstantial at recent inflation rates, and that allowing accelerated depreciationand valuing depreciation at replacement cost for tax purposes are alternate waysof alleviating the biases caused by the use of “historical cost” depreciation.
As yet another example, Feldstein has written a series of papers on the impactof tax breaks for charitable contributions on the amount of charitable giving (see,for example, Feldstein and Clotfelter (1976)). These papers find that theelasticity of charitable giving with respect to the price or net cost of giving isslightly greater than one, which implies that any reduction in price will increase
the total contributions received by charitable organizations by more than the
reduction in tax revenue.
Moreover, Feldstein has also shown that the distortions caused by the tax
system are exacerbated by the interaction between an unindexed tax systeminteracts and high inflation (see Feldstein (1983b) for a collection of a number6

of his papers on this topic). For example, inflation increases households’
nominal incomes and pushes them into higher and higher tax brackets, thereby
raising their marginal tax rates (a phenomenon called “bracket creep”).
Similarly, Feldstein (1983b, 1995e) has shown that inflation distorts themeasurement of capital income and raises the effective tax rate on the return tosaving. For example, because nominal interest income and nominal capitalgains (the nominal increase in asset values) are taxed at the personal level,interest income and capital gains are overstated and overtaxed when there is
inflation. Furthermore, because depreciation is understated and inventory
profits are overstated when there is inflation, corporate income is overstated andovertaxed (although the fact that nominal interest payments can be deductedfrom profits works in the opposite direction). For example, Feldstein andSummers (1978) show that, on balance, the high rates of inflation in the UnitedStates in the 1970s raised the effective tax rate on corporate income
substantially, and Feldstein (1982a) shows that this, in turn, has substantiallyreduced business investment in the United States since the late 1960s.
Moreover, Feldstein (1982b) shows that the interaction between the tax codeand inflation has distorted not only the size of the capital stock but also theallocation of capital between business capital and housing capital, leading to too
little of the former and too much of the latter.
The Feldstein-Horioka Paradox or Puzzle
One of Feldstein’s best known papers is Feldstein and Horioka (1980), his joint
paper with Charles Yuji Horioka on international capital mobility (see also
Feldstein (1983a) and Feldstein and Bacchetta (1991)). In this paper, theauthors regress the domestic investment rate on the domestic saving rate using
cross-section data on OECD member countries for the 1960-74 period and findthat the coefficient of the domestic saving rate (subsequently referred to as the“saving retention coefficient”) is significantly different from zero but notsignificantly different from one. If capital markets are fully integrated andcapital flows freely across national borders in search of the highest return, thiscoefficient should be zero (at least in the case of small economies). The factthat it is not significantly different from one suggests (in the absence of legal
and other restrictions on international capital flows) that “home bias” is strong
and that people strongly prefer to invest their saving in their home country.
This result generated considerable interest and surprise because many
economists had assumed that capital had become perfectly mobileinternationally, and it came to be known as the “Feldstein-Horioka puzzle orparadox.” It spawned a voluminous literature trying to verify and/or explain the
result (see Coakley, Kulasi, and Smith (1998) and Apergis and Tsoumas (2009)
for surveys of this literature), it was included in Obsfeldt and Rogoff’s (2001)7

list of the “six major puzzles in international macroeconomics,” it is covered inmany, if not most, textbooks in macroeconomics and international economics,
and it is one of the most frequently cited papers in international economics.
The findings of this paper are important for a number of reasons. First, they
shed light on the true nature of the world capital market and on the extent towhich capital markets are integrated. Second, they confirm that it is appropriate,
at least as a first approximation, to study income distribution in general and tax
incidence in particular using models that ignore international capital mobility.
Third, they imply that the national return on domestic saving is approximately
equal to the pre-tax domestic marginal product of capital since such saving
increases the domestic capital stock rather than either flowing abroad or
replacing foreign investment at home.
The Economics of the European Monetary Union
A related topic on which Feldstein has also made an important contribution is
the impact of the introduction of the European Monetary Union (EMU) and theeuro. Feldstein did extensive research on this topic both before and after the
introduction of the EMU and the euro and has shown convincingly that thedisadvantages of implementing a monetary union among a very heterogeneousgroup of countries have far outweighed the advantages thereof and that theexperiment was a dismal failure (see, for example, Feldstein (1997a, 2005a, and2012)).
The Economics of National Security
In recent years, Feldstein has become increasingly interested in the economics
of national security, a topic of growing importance due to the rapid rise interrorism and military conflicts. In addition to conducting research on various
topics relating to national security, Feldstein has been advising graduate
students on topics relating to national security, started a new graduate course on
the Economics of National Security at Harvard shortly after the September 11,
2001, attacks, heads the Working Group on the Economics of National Security
at the National Bureau of Economic Research, and founded the Economics of
National Security Association (ENSA) in 2013.
To cite two examples of Feldstein’s work in this area, Feldstein (2008) proposes
ways of reforming the institutions for domestic counterterrorism (CT) in the
United States and of strengthening cooperation among the CT activities of the
U.S. and its allies, while Feldstein (2009b) draws lessons from the 1930s to
make recommendations concerning economic and national security policies for
the United States today, one of which is to increase the scale and funding of the8Federal Bureau of Investigation (FBI) and the Department of Homeland
Security to prepare for the threats of domestic terrorism and cyber attacks that
did not exist in the 1930s.
Economics Education
As an academic, Feldstein has made a substantial contribution not only toeconomics research but also to economics education. Perhaps most importantly,
he has trained numerous prominent economists who went on to occupy the top
echelons of academia and government, among them Alan J. Auerbach (Robert
D. Burch Professor of Economics and Law, Director of the Burch Center for
Tax Policy and Public Finance, and formerly Chair of the Economics
Department, University of California, Berkeley, and formerly Deputy Chief ofStaff of the U.S. Joint Committee on Taxation), Raj Chetty (professor at
Harvard University, a 2012 MacArthur Fellow, and recipient of the 2013 John
Bates Clark Medal), David T. Ellwood (professor and Dean of the John F.
Kennedy School of Government at Harvard University and formerly Assistant
Secretary for Planning and Evaluation at the U.S. Department of Health andHuman Services), Douglas W. Elmendorf (Director of the Congressional
Budget Office and formerly Deputy Assistant Secretary for Economic Policy at
the U.S. Department of the Treasury and Senior Fellow at the Brookings
Institution), Charles Yuji Horioka (Research Professor at the Asian Growth
Research Institute in Kitakyushu City, Japan, previously Vea Family Professorof Technology and Evolutionary Economics Centennial at the University of thePhilippines, Diliman, and recipient of the 2001 Japanese Economic AssociationNakahara Prize), R. Glenn Hubbard (professor and Dean of the Business Schoolat Columbia University and formerly Deputy Assistant Secretary for Tax
Analysis at the U.S. Department of the Treasury and Chairperson of the
President’s Council of Economic Advisors), Steven N. Kaplan (Neubauer
Family Distinguished Service Professor of Entrepreneurship and Finance at the
University of Chicago and one of the top twelve Business School professors in
the country according to Business Week), Jeffrey B. Liebman (Malcolm Wiener
Professor of Public Policy, John F. Kennedy School of Government, Harvard
University, and formerly Acting Deputy Director for Policy in the U.S. Officeof Management and Budget), Lawrence B. Lindsey (Chief Executive Officer ofthe Lindsey Group and formerly Director of the National Economic Council andmember of the Board of Governors of the Federal Reserve System), Jose Pinera(Distinguished Senior Fellow at the Cato Institute and formerly Chile’s
Secretary of Labor and Social Security and Secretary of Mining and architect ofChile’s private pension system), James M. Poterba (professor and formerly
Head of the Economics Department at the Massachusetts Institute ofTechnology, Feldstein’s successor as President of the National Bureau of9Economic Research, and formerly a member of the President’s Advisory Panelon Federal Tax Reform), Harvey S. Rosen (professor and formerly Chair of the
Economics Department at Princeton University and formerly Deputy Assistant
Secretary for Tax Analysis at the U.S. Department of the Treasury and member
and Chairperson of the President’s Council of Economic Advisors), Jeffrey D.
Sachs (Professor and Director of the Earth Institute at Columbia University andformerly Professor at Harvard University, advisor to many Latin American andpost-Communist economies, and Special Adviser to two successive United
Nations Secretaries-General on the Millennium Development Goals), Andrew A.
Samwick (Sandra L. and Arthur L. Irving '72a, P'10 Professor of Economics andDirector of the Nelson A. Rockefeller Center for Public Policy and the Social
Sciences, Dartmouth College, and formerly Chief Economist of the President’s
Council of Economic Advisors), Joel Slemrod (Professor, Economics
Department Chair, and Director of the Office of Tax Policy Research at the
University of Michigan, Ann Arbor, a member of the Congressional Budget
Office Panel of Economic Advisers, and recipient of the 2001 Ig Noble Prize in
Economics), Lawrence H. Summers (Professor and formerly President of
Harvard University, recipient of the 1993 John Bates Clark Medal, and formerly
Secretary of the Treasury, Chief Economist of the World Bank, and Chairpersonof the President’s National Economic Council), and this is a very incomplete list.
Furthermore, Feldstein taught the introductory course in economics at Harvardfor 21 years (from 1984 until 2005), and this course was the most popular
course on campus when he was teaching it, with more than 1000 students
enrolled in it in some years.
The National Bureau of Economic Research
Moreover, Feldstein contributed significantly to the development of the field of
economics by serving as the President of the National Bureau of Economic
Research, Inc. (NBER), the U.S.’s leading non-profit, non-partisan economic
research organization, for some thirty years. He became President in 1977 at
the tender age of 37, and served in this capacity until he retired in 2008 (except
in 1982-84, when he was Chairperson of the Council of Economic Advisors
under President Reagan). The NBER expanded and prospered enormously
during his many years at the helm and now counts more than 1300 leading
scholars from throughout North America as Research Associates. Moreover,
Feldstein organized the NBER into Research Programs (of which there are now20) and Working Groups (of which there are now 15), created the NBER
Working Paper series (dubbed “yellow jackets” because of their distinctive
yellow covers), inaugurated the NBER Summer Institute, a three-weekgathering of applied economists that now draws 2400 participants a year, moved
10

the headquarters to a modern office building near the Harvard campus in the
direction of MIT, and fostered ties with the Centre for Economic Policy
Research (its European counterpart), the Chinese and Academy of Sciences, etc.
(see Warsh (2008) for more details). One indication of the NBER's prominenceis that 24 Nobel Prize winners in Economics and 13 past Chairs of the
President's Council of Economic Advisers have been researchers at the NBER.
Feldstein is still active at the NBER as President Emeritus and Director of theWorking Group on the Economics of National Security. Moreover, to honour
Feldstein’s outstanding tenure as President, the NBER inaugurated the Martin
Feldstein Lecture, an annual lecture by an outstanding economist, in 2009.
Economic Policymaking
In addition, Feldstein has been deeply involved in economic policymaking formuch of his career. In 1982-84, he served for two years as Chairperson of theCouncil of Economic Advisors under President Reagan and spoke out strongly
about the dangers of ballooning federal government deficits even though thisled to conflicts with other members of the Reagan Administration and his
advice was not always heeded. Feldstein has continued speaking out about thedangers of ballooning government deficits, and in recent years, his staunch
advocacy of scaling back tax expenditures as a way of trimming federal
government deficits has incurred the wrath of Republicans, who are against any
increases in tax revenues, but has garnered the widespread support of
Democrats.
With respect to other policies upon which Feldstein has had an influence, he
was instrumental in cutting the capital gains tax and making unemployment
compensation benefits taxable and has long been an avid advocate of social
security reform, was instrumental in implementing a tax reform that made social
security benefits taxable in the case of high-income households in 1983, andwas one of the main driving forces behind former President George W. Bush's
initiative of partial privatization of the social security system in 2005. President
Bush’s initiative ultimately failed, but much earlier (in 1980), one of Feldstein’s
disciples, Jose Pinera, successfully privatized Chile’s pension system andconverted it into a fully funded system based on personal retirement accounts as
Secretary of Labor and Social Security.
Thus, Feldstein has made remarkable contributions not only to the developmentof the field of economics but also to the conduct of economic policy as a
researcher, research administrator, policy advisor, educator, and journalist.

11

Acknowledgements
I am grateful to James Poterba and an anonymous referee for their detailed andhelpful comments.
Selected Works
Feldstein, Martin S. (1970), “The Rising Price of Physician's Services,” Review
of Economics and Statistics, vol. 52, no. 2 (May), pp. 121-133.
Feldstein, Martin S. (1971), “A New Approach to National Health Insurance,”
The Public Interest, vol. 23, no. xx, pp. 93-105.
Feldstein, Martin S. (1973), "The Welfare Loss of Excess Health Insurance,"
Journal of Political Economy, vol. 81, no. 2, part I (March/April), pp. 251-80.
Feldstein, Martin S. (1974), "Social Security, Induced Retirement, andAggregate Capital Accumulation," Journal of Political Economy, vol. 82, no. 5(Sept./Oct.), pp. 905-26.
Feldstein, Martin S. (1976a), "On the Theory of Tax Reform," Journal of Public
Economics, vol. 6, no. 1-2 (July-August), pp. 77-104.
Feldstein, Martin S. (1976b), “Temporary Layoffs in the Theory of
Unemployment,” Journal of Political Economy, vol. 84, no. 5 (October), pp.
937-957.
Feldstein Martin S. (1977), “Social Security and Private Savings: International
Evidence in an Extended Life Cycle Model,” in Martin Feldstein and Robert
Inman, eds., The Economics of Public Services (International Economic
Association Conference Volume) (London: Macmillan Publishers Ltd.), pp.
174-206.
Feldstein, Martin S. (1978a), "The Effect of Unemployment Insurance on
Temporary Layoff Unemployment," American Economic Review, vol. 68, no. 5(December), pp. 834-846.
Feldstein, Martin S. (1978b), “The Rate of Return, Taxation and Personal
Savings,” Economic Journal, vol. 88, no. 351 (September), pp. 482-487.
Feldstein, Martin S. (1978c), “The Welfare Cost of Capital Income Taxation,”
Journal of Political Economy, vol. 86, no. 2 (April), pp. S29-51.
12

Feldstein, Martin S. (1980), "International Differences in Social Security and
Saving," Journal of Public Economics, vol. 14, no. 2 (October), pp. 225-244.
Feldstein, Martin S. (1981), “Adjusting Depreciation in an Inflationary
Economy: Indexing versus Acceleration,” National Tax Journal, vol. 34, no. 1(March), pp. 29-43.
Feldstein, Martin S. (1982a). "Inflation, Tax Rules and Investment: Some
Econometric Evidence," Econometrica, vol. 50, no. 4 (July), pp. 825-862.
Feldstein, Martin (1982b), “Inflation, Tax Rules and the Accumulation of
Residential and Nonresidential Capital," Scandinavian Journal of Economics,
vol. 84, no. 2, pp. 293-311.
Feldstein, Martin S. (1982c), "Social Security and Private Saving: Reply,"
Journal of Political Economy, vol. 90, no. 3 (June), pp. 630-42.
Feldstein, Martin S. (1983a), "Domestic Saving and International Capital
Movements in the Long Run and the Short Run," European Economic Review,
vol. 21, no. 1-2, pp. 129-151.
Feldstein, Martin S. (1983b), Inflation, Tax Rules, and Capital Formation(National Bureau of Economic Research Books) (Chicago, Illinois, U.S.A.:
University of Chicago Press).
Feldstein, Martin S. (1995a), “Behavioral Responses to Tax Rates: Evidence
from the Tax Reform Act of 1986,” American Economic Review, vol. 85, no. 2(May), pp. 170-74.
Feldstein, Martin S. (1995b), "College Scholarship Rules and Private Saving,"
American Economic Review, vol. 85, no. 3 (June), pp. 552-566.
Feldstein, Martin S. (1995c), "The Economics of Health and Health Care: What
Have We Learned? What Have I Learned?," American Economic Review, vol.
85, no. 2 (May), pp. 28-31.
Feldstein, Martin S. (1995d), "The Effect of Marginal Tax Rates on Taxable
Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political
Economy, vol. 103, no. 3 (June), pp. 551-72.
Feldstein, Martin S. (1995e), "Fiscal Policies, Capital Formation, andCapitalism," European Economic Review, vol. 39, no. 3-4 (April), pp. 399-420.
13

Feldstein, Martin S. (1995f), "Would Privatizing Social Security Raise
Economic Welfare?," NBER Working Paper No. 5281, National Bureau of
Economic Research, Inc.
Feldstein, Martin S. (1996a), "The Missing Piece in Policy Analysis: Social
Security Reform," American Economic Review, vol. 86, no. 2 (May), pp. 1-14.
Feldstein, Martin S. (1996b), “Social Security and Saving: New Time Series
Evidence,” National Tax Journal, vol. 49, no. 2 (June), pp. 151-164.
Feldstein, Martin S. (1997a), “The Political Economy of the European
Economic and Monetary Union: Political Sources of an Economic Liability,”
Journal of Economic Perspectives, vol. 11, no. 4 (Fall), pp. 23-42.
Feldstein, Martin S. (1997b), " Public Policy and Financial Markets: Privatizing
Social Security," Journal of Finance, vol. 52, no. 3 (July), pp. 1182-1184.
Feldstein, Martin S. (1998), “Transition to a Fully Funded Pension System: Five
Economic Issues,” in Horst Siebert, ed., Redesigning Social Security (Tubingen:
Mohr (Siebeck)), pp. 299-315.
Feldstein, Martin S. (1999a), "Prefunding Medicare," American Economic
Review, vol. 89, no. 2 (May), pages 222-227.
Feldstein, Martin S. (1999b), "Tax Avoidance and the Deadweight Loss of the
Income Tax," Review of Economics and Statistics, vol. 81, no. 4 (November),
pp. 674-680.
Feldstein, Martin S. (2005a), “The Euro and the Stability Pact,” Journal of
Policy Modeling, vol. 27, no. 4 (June), pp. 421-426.
Feldstein, Martin S. (2005b), “Rethinking Social Insurance,” American
Economic Review, vol. 95, no. 1 (March), pp. 1-24.
Feldstein, Martin S. (2005c), “Structural Reform of Social Security,” Journal of
Economic Perspectives, vol. 19, no. 2 (Spring), pp. 33-55.
Feldstein, Martin S. (2008), "Designing Institutions to Deal with Terrorism in
the United States," American Economic Review, vol. 98, no. 2 (May), pp. 122126.
Feldstein, Martin S. (2009a), "Reducing the Risk of Investment-Based Social
Security Reform," in: Jeffrey R. Brown, Jeffrey B. Liebman, and David A. Wise,14

eds., Social Security Policy in a Changing Environment (Chicago: University of
Chicago Press), pp. 201-218.
Feldstein, Martin S. (2009b), “Economic Conditions and U.S. National Security
in the 1930s and Today,” NBER Working Paper No. 15290, National Bureau of
Economic Research, Inc. (August).
Feldstein, Martin S. (2012), “The Failure of the Euro: The Little Currency That
Couldn’t,” Foreign Affairs, vol. 91, no. 1 (January-February).
Feldstein, Martin S., and Altman, Daniel (2007), "Unemployment Insurance
Savings Accounts," in: James M. Poterba, ed., Tax Policy and the Economy, vol.
21 (Cambridge, Massachusetts, USA: MIT Press), pp. 35-64.
Feldstein, Martin S., and Bacchetta, Philippe Bacchetta (1991), "National
Saving and International Investment," in Bernheim, B. Douglas, and Shoven,John B, eds., National Saving and Economic Performance (Chicago, Illinois,
U.S.A.: University of Chicago Press), pp. 201-226.
Feldstein, Martin S., and Clotfelter, Charles (1976), "Tax Incentives andCharitable Contributions in the United States: A Microeconometric Analysis,"
Journal of Public Economics, vol. 5, no. 1-2 (January-February), pp. 1-26.
Feldstein, Martin S., and Feenberg, Daniel (1996), "The Effect of Increased Tax
Rates on Taxable Income and Economic Efficiency: A Preliminary Analysis of
the 1993 Tax Rate Increases," in: James M. Poterba, ed., Tax Policy and theEconomy (Cambridge, Massachusetts, USA: MIT Press), vol. 10, pp. 89-118.
Feldstein, Martin S., and Gruber, Jonathan (1995), “A Major Risk Approach to
Health Insurance Reform,” in James M. Poterba, ed., Tax Policy and theEconomy, vol. 9 (Cambridge, Massachusetts, USA: MIT Press), pp. 103-130.
Feldstein, Martin S., and Horioka, Charles (1980), "Domestic Saving andInternational Capital Flows," Economic Journal, vol. 90, no. 358 (June), pp.
314-29.
Feldstein, Martin S., and Liebman, Jeffrey B. (2002a), “The Distributional
Effects of an Investment-Based Social Security System,” in Martin Feldsteinand Jeffrey B. Liebman, eds., The Distributional Aspects of Social Security andSocial Security Reform (Chicago, Illinois, USA: University of Chicago Press),
pp. 263-322.
15

Feldstein, Martin S., and Liebman, Jeffrey B. (2002b), “Social Security,” in
Alan J. Auerbach and Martin Feldstein, eds., Handbook of Public Economics(Amsterdam, Netherlands: Elsevier Science, North-Holland), pp. 2245-2324.
Feldstein, Martin S., and Poterba, James (1984), "Unemployment Insurance andReservation Wages," Journal of Public Economics, vol. 23, nos.1-2, pages 141167.
Feldstein, Martin S., and Ranguelova, Elena (2001), "Individual Risk in an
Investment-Based Social Security System," American Economic Review, vol. 91,
no. 4 (September), pp. 1116-1125.
Feldstein, Martin S., and Samwick, Andrew (1997), ““The Economics ofPrefunding Social Security and Medicare Benefits,” in Ben S. Bernanke andJulio J. Rotemberg, eds., NBER Macroeconomic Annual 1997 (Cambridge,
Massachusetts, USA: MIT Press), pp. 115-148.
Feldstein, Martin S., and Samwick, Andrew (1998a), “Potential Effects of Two
Percent Personal Retirement Accounts,” Tax Notes, vol. 79. no. 5 (May 4), pp..
615-620.
Feldstein, Martin S., and Samwick, Andrew (1998b), “The Transition Path inPrivatizing Social Security,” in Martin Feldstein, ed., Privatizing Social
Security (Chicago, Illinois, USA: University of Chicago Press), pp. 215-260.
Feldstein, Martin S., and Samwick, Andrew (2002), “Potential Paths of Social
Security Reform,” in James M. Poterba, ed., Tax Policy and the Economy 2001,
vol. 16 (Cambridge, Massachusetts, USA: MIT Press), pp. 181-224.
Feldstein, Martin S., and Summers, Lawrence (1978), "Inflation, Tax Rules, andthe Long Term-Interest Rate," Brookings Papers on Economic Activity, vol. 9,
no. 1, pp. 61-110.
Feldstein, Martin S., and Yitzhaki, Shlomo (1978), “The Effects of the Capital
Gains Tax on the Selling and Switching of Common Stock,” Journal of Public
Economics, vol. 6, no. 1 (February), pp. 17-36.

16

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http://www.economicprincipals.com/issues/2008.07.27/328.html

Leimar and Lesnoy (1982) pointed out that there was a programming error in the program used to
calculate the social security wealth variable used in Feldstein (1974), but Feldstein (1982c) showedthat correcting the error does not change the basic result, and moreover, Feldstein (1974) remains ofseminal importance even though the empirical results have been debated because it focused attention
on social security crowd-out issues.
i17