Several recent studies imply that the response of national saving to fiscal policy is non-monotonic. In this paper, we use two data sets to search for the circumstances in which such non-monotonic responses arise: one refers to a sample of OECD countries, as in previous studies, and one to a sample of developing countries, using recent World Bank data. We find that in both samples non-monotonic effects tend to be associated with large and persistent fiscal impulses. In the OECD such responses are stronger for fiscal contractions than for fiscal expansions: during large fiscal contractions an increase in net taxes has no effect on national saving. High or rapidly growing public debt does not appear to be a good predictor of non-monotonic effects. Using the World Bank data, the situations in which the non-monotonic response of national saving to fiscal policy are not limited to large fiscal contractions. They also occur during large fiscal expansions, and in periods in which debt is accumulating rapidly, regardless of its initial level.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2374.
Find related papers by JEL classification: E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
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