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Savings and investment in Australia

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  • Martin Schmidt

Abstract

It has become popular to advocate tax reduction on the basis of promoting savings, investment and ultimately economic growth. The linkage between the variables is argued by various neoclassical growth models and is further suggested by recent studies which highlight the close association between domestic saving and investment rates. The close association may allow for polices which alter domestic saving levels in order to alter domestic investment levels. This interpretation, however, presumes an endogenous investment response. Equally likely, theoretically, is that the close association is maintained by movements in national savings. The present paper explicitly examines the endogeneity of the Australian saving and investment rates. The results highlight the exogeneity of investment. The results further suggest an endogenous response on the part of Australia's saving rate. The results may limit the potential benefits of these tax changes.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 35 (2003)
Issue (Month): 1 ()
Pages: 99-106

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Handle: RePEc:taf:applec:v:35:y:2003:i:1:p:99-106

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References

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Citations

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Cited by:
  1. Saten Kumar & Don J. Webber & Scott Fargher, 2012. "Testing the validity of the Feldstein--Horioka puzzle for Australia," Applied Economics, Taylor & Francis Journals, vol. 44(5), pages 599-605, February.
  2. Solarin Sakiru Adebola & Jauhari Dahalan, 2012. "Capital Mobility: An Application of Savings-Investment Link for Tunisia," International Journal of Economics and Financial Issues, Econjournals, vol. 2(1), pages 1-11.
  3. Muhammad Shahbaz & Nadeem Ahmad & Abu Wahid, 2010. "Savings–Investment Correlation and Capital Outflow: The Case of Pakistan," Transition Studies Review, Springer, vol. 17(1), pages 80-97, May.
  4. Kumar Narayan, Paresh, 2005. "The relationship between saving and investment for Japan," Japan and the World Economy, Elsevier, vol. 17(3), pages 293-309, August.
  5. Jiranyakul, Komain & Brahmasrene, Tantatape, 2008. "Cointegration between Investment and Saving in Selected Asian Countries: ARDL Bounds Testing Procedure," MPRA Paper 45076, University Library of Munich, Germany.
  6. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
  7. Abu N.M. Wahid & Mohammad Salahuddin & Abdullah M. Noman, 2010. "Savings and investment in South Asia: Evidence from likelihood ratio based panel cointegration," Journal of Economic Studies, Emerald Group Publishing, vol. 37(6), pages 658-666, September.
  8. Apergis, Nicholas & Tsoumas, Chris, 2009. "A survey of the Feldstein-Horioka puzzle: What has been done and where we stand," Research in Economics, Elsevier, vol. 63(2), pages 64-76, June.
  9. Narayan, Paresh Kumar & Narayan, Seema, 2010. "Testing for capital mobility: New evidence from a panel of G7 countries," Research in International Business and Finance, Elsevier, vol. 24(1), pages 15-23, January.

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