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Saving Behaviour and the Effectiveness of Fiscal Policy

Author

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

Abstract

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.

Suggested Citation

  • Luiz de Mello & Per Mathis Kongsrud & Robert W. R. Price, 2004. "Saving Behaviour and the Effectiveness of Fiscal Policy," OECD Economics Department Working Papers 397, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:397-en
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    File URL: http://dx.doi.org/10.1787/335042602762
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    Cited by:

    1. 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.
    2. Jonas Fischer & Lars Jonung & Martin Larch, 2007. "101 Proposals to reform the Stability and Growth Pact. Why so many? A Survey," European Economy - Economic Papers 2008 - 2015 267, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2011. "Current Account Imbalances: can Structural Reforms Help to Reduce Them?," OECD Journal: Economic Studies, OECD Publishing, vol. 2011(1), pages 1-44.
    4. Berben, Robert-Paul & Brosens, Teunis, 2007. "The impact of government debt on private consumption in OECD countries," Economics Letters, Elsevier, vol. 94(2), pages 220-225, February.
    5. Yvonne Adema & Lorenzo Pozzi, 2012. "Business Cycle Fluctuations and Private Savings in OECD Countries: A Panel Data Analysis," Tinbergen Institute Discussion Papers 12-144/VI, Tinbergen Institute.
    6. Salotti, Simone, 2008. "Global imbalances and household savings: the role of wealth," MPRA Paper 17729, University Library of Munich, Germany, revised 2009.
    7. 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, vol. 26(4), pages 546-569, June.
    8. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    9. Sahoo, Pravakar & Dash, Ranjan Kumar, 2013. "Financial sector development and domestic savings in South Asia," Economic Modelling, Elsevier, vol. 33(C), pages 388-397.
    10. Paul Hiebert, 2006. "Household Saving and Asset Valuations in Selected Industrialised Countries," RBA Research Discussion Papers rdp2006-07, Reserve Bank of Australia.
    11. 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.
    12. 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.
    13. El Mekkaoui de Freitas, Najat & Oliveira Martins, Joaquim, 2014. "Health, pension benefits and longevity: How they affect household savings?," The Journal of the Economics of Ageing, Elsevier, vol. 3(C), pages 21-28.
    14. Luiz de Mello & Pier Carlo Padoan & Linda Rousová, 2012. "Are Global Imbalances Sustainable? Shedding Further Light on the Causes of Current Account Reversals," Review of International Economics, Wiley Blackwell, vol. 20(3), pages 489-516, August.
    15. Adema, Yvonne & Pozzi, Lorenzo, 2015. "Business cycle fluctuations and household saving in OECD countries: A panel data analysis," European Economic Review, Elsevier, vol. 79(C), pages 214-233.
    16. Maria Gabriella Briotti, 2005. "Economic reactions to public finance consolidation - a survey of the literature," Occasional Paper Series 38, European Central Bank.
    17. Alan Moran, 2007. "Land Regulations, Housing Prices and Productivity," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 14(1), pages 35-50.
    18. Mohn, Klaus, 2016. "Resource revenue management and wealth neutrality in Norway," Energy Policy, Elsevier, vol. 96(C), pages 446-457.
    19. Merike Kukk & Karsten Staehr, 2015. "Macroeconomic factors in corporate and household saving. Evidence from Central and Eastern Europe," Bank of Estonia Working Papers wp2015-5, Bank of Estonia, revised 30 Dec 2015.
    20. Shane Brittle, 2010. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 43(3), pages 254-269.
    21. Yoichi Matsubayashi & Takao Fujii, 2012. "Substitutability of Savings by Sectors: OECD Experiences," Discussion Papers 1215, Graduate School of Economics, Kobe University.

    More about this item

    Keywords

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

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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