IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/574.html
   My bibliography  Save this paper

Public policies and saving in developing countries

Author

Listed:
  • Corbo, Vittorio
  • Schmidt-Hebbel, Klaus

Abstract

This paper draws on estimates of consumption functions for 13 developing countries to analyze the effectiveness of public policy in raising saving. First, it provides evidence from time-series and panel data on how liquidity constraints affect consumption functions. This suggests that a rise in public saving does not produce an equal reduction in private saving. Second, it presents direct evidence of thelink between private consumption and government saving. These show that indirect effects of public policies on private saving are negligible, but that cuts in current public spending and current tax hikes significantly affect private saving. Increasing public saving by cutting current-period public expenditures by $1 reduces private saving by only 16 to 50 cents. Permanent cuts in public spending reduce private saving by 47 to 50 cents. A higher permanent tax hike has less of an effect on private saving than a transitory tax hike. For each $1 increase in permanent taxes, private saving declines only 23 to 26 cents. Increasing only current-period taxes reduces private saving between 48 and 65 cents. Increasing taxes and improving tax compliance are the most efficient ways to reduce public deficits when traditional tax revenue is low and inefficient tax levies are high and widespread. Finally, public policy can help raise private saving and make their use more efficient by providing a macroeconomic framework in which inflation is low and incentives are predictable.

Suggested Citation

  • Corbo, Vittorio & Schmidt-Hebbel, Klaus, 1991. "Public policies and saving in developing countries," Policy Research Working Paper Series 574, The World Bank.
  • Handle: RePEc:wbk:wbrwps:574
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1991/01/01/000009265_3960930161120/Rendered/PDF/multi_page.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. D. Lucy & R. G. Aykroyd & A. M. Pollard, 2002. "Nonparametric calibration for age estimation," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 51(2), pages 183-196.
    2. David Audretsch & Max Keilbach, 2004. "Entrepreneurship Capital and Economic Performance," Regional Studies, Taylor & Francis Journals, vol. 38(8), pages 949-959.
    3. Suyanto & Salim, Ruhul A. & Bloch, Harry, 2009. "Does Foreign Direct Investment Lead to Productivity Spillovers? Firm Level Evidence from Indonesia," World Development, Elsevier, vol. 37(12), pages 1861-1876, December.
    4. Meeusen, Wim & van den Broeck, J, 1977. "Technical Efficiency and Dimension of the Firm: Some Results on the Use of Frontier Production Functions," Empirical Economics, Springer, vol. 2(2), pages 109-122.
    5. Quah, Danny, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," CEPR Discussion Papers 1586, C.E.P.R. Discussion Papers.
    6. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    7. Richard E. Caves, 1998. "Industrial Organization and New Findings on the Turnover and Mobility of Firms," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1947-1982, December.
    8. Colombo, Massimo G. & Grilli, Luca, 2005. "Founders' human capital and the growth of new technology-based firms: A competence-based view," Research Policy, Elsevier, vol. 34(6), pages 795-816, August.
    9. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, January.
    10. Quah, Danny T, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," Journal of Economic Growth, Springer, vol. 2(1), pages 27-59, March.
    11. Rajshree Agarwal & Barry L. Bayus, 2002. "The Market Evolution and Sales Takeoff of Product Innovations," Management Science, INFORMS, vol. 48(8), pages 1024-1041, August.
    12. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Economic Theory&Research; Environmental Economics&Policies; Inequality; Banks&Banking Reform; Macroeconomic Management;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:574. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.