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Are we Saving Enough? The Macroeconomics of the Savings Gap

Author

Listed:
  • Olga Pomerantz

    (National Institute of Economic and Social Research, o.pomerantz@niesr.ac.uk)

  • Martin Weale

    (National Institute of Economic and Social Research, m.weale@niesr.ac.uk)

Abstract

We assess the adequacy of saving in the United Kingdom from a macroeconomic perspective. We present conditions needed for wealth to grow in line with income and discuss the circumstances in which capital gains can represent a substitute for saving. We show that reference to balance sheets can be misleading because they fail to identify the cost of future consumption. A savings gap of between £16.5 bn and £66 bn is identified before taking account of the effects of demographic change. The outcome depends on whether one regards rising house prices as a consequence of fixed supplies of land or as the outcome of failing to invest enough in housing with the upper figure arising in the latter case. Policy measures to reduce the savings gap are discussed. These include appropriate use of fiscal policy and taxation of credit.

Suggested Citation

  • Olga Pomerantz & Martin Weale, 2005. "Are we Saving Enough? The Macroeconomics of the Savings Gap," National Institute Economic Review, National Institute of Economic and Social Research, vol. 191(1), pages 79-93, January.
    • Handle: RePEc:sae:niesru:v:191:y:2005:i:1:p:79-93
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