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Saving Behaviour and the Effectiveness of Fiscal Policy


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  • Luiz de Mello
  • Per Mathis Kongsrud
  • Robert W.R. Price


This paper examines the extent to which fiscal policy actions may be offset by simultaneous, anticipatory changes in private saving, as well as the determinants of that offset. The conditions under which private agents will engage in forward-looking consumption-smoothing behaviour are quite strict and unlikely to hold fully in practice. However, based on a sample of at most 21 OECD countries spanning the period 1970-2002, there is strong evidence of partial, yet substantial, offsetting movements in aggregate private and public saving. The overall offset is estimated at between about one-third and one-half, depending on model specification, and applies both to public consumption and revenue shifts. This is consistent with a marked degree of anticipatory private sector behaviour, insofar as the ex ante saving “leakage” embedded in the pure Keynesian or IS/LM type models would be expected to be smaller and apply only to revenues and transfers. Wealth effects, as in the case of rising equity and housing prices, are found to have an important complementary impact on saving, usually in reinforcing the direct saving offset. Initial conditions, as reflected in debt/GDP ratios are also found to influence the size of the offset. Comportement d'économie et l'efficacité de la politique fiscale Cet article examine dans quelle mesure la politique budgétaire discrétionnaire peut être compensée par des mouvements simultanés et anticipés de l’épargne privée. Il étudie aussi les déterminants de cette compensation. Les conditions sous lesquelles les agents économiques privés lisseraient leur consommation dans le temps apparaissent difficilement applicables en pratique. Cependant, sur la base d’un échantillon d’au plus 21 pays de l’OCDE couvrant la période allant de 1970 à 2002, les résultats de cette étude indiquent une compensation partielle, bien que substantielle, des mouvements de l’épargne privée et publique agrégées. L’estimation de la compensation globale varie entre un tiers et un demi selon la spécification du modèle et s’applique tant à la consommation publique qu’aux recettes. Ce résultat est compatible avec un comportement d’anticipation très accusé de l’épargne privée dans la mesure où les fuites ex ante d’épargne incorporées dans les modèles Keynésiens purs ou du type IS/LM sont supposées plus faibles et ne s’appliqueraient qu’aux recettes et aux transferts. Les résultats indiquent que les effets de richesse, provenant de l’augmentation des prix des actions et des logements, ont une incidence complémentaire importante sur l’épargne. Les conditions initiales, reflétées par le ratio dette sur PIB, affectent la taille de la compensation.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 397.

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Date of creation: 13 Jul 2004
Date of revision:
Handle: RePEc:oec:ecoaaa:397-en

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Keywords: private saving; ricardian equivalence; fiscal policy; épargne privée; équivalence ricardienne; politique budgétaire;

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Cited by:
  1. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2010. "The Impact of Structural Policies on Saving, Investment and Current Accounts," OECD Economics Department Working Papers 815, OECD Publishing.
  2. Larch, Martin & Jonung, Lars & Fischer, Jonas, 2008. "101 proposals to reform the Stability and Growth Pact. Why so many? A survey," MPRA Paper 20592, University Library of Munich, Germany.
  3. Romain Duval & Jørgen Elmeskov, 2005. "The Effects of EMU on Structural Reforms in Labour and Product Markets," OECD Economics Department Working Papers 438, OECD Publishing.
  4. Richard Herd & Sean Dougherty, 2007. "Growth Prospects in China and India Compared," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 4(1), pages 65-89, June.
  5. Sahoo, Pravakar & Dash, Ranjan Kumar, 2013. "Financial sector development and domestic savings in South Asia," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 388-397.
  6. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers, School of Economics, University of Wollongong, NSW, Australia wp09-10, School of Economics, University of Wollongong, NSW, Australia.
  7. Maria Gabriella Briotti, 2005. "Economic reactions to public finance consolidation - a survey of the literature," Occasional Paper Series 38, European Central Bank.
  8. Robert-Paul Berben & Teunis Brosens, 2005. "The Impact of Government Debt on Private Consumption in OECD Countries," DNB Working Papers, Netherlands Central Bank, Research Department 045, Netherlands Central Bank, Research Department.
  9. Salotti, Simone, 2008. "Global imbalances and household savings: the role of wealth," MPRA Paper 17729, University Library of Munich, Germany, revised 2009.
  10. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2011. "Current Account Imbalances: can Structural Reforms Help to Reduce Them?," OECD Journal: Economic Studies, OECD Publishing, OECD Publishing, vol. 2011(1), pages 1-44.
  11. Chinn, Menzie D. & Ito, Hiro, 2007. "Current account balances, financial development and institutions: Assaying the world "saving glut"," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(4), pages 546-569, June.


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