A number of empirical aspects of saving behaviour have not yet been conclusively resolved. These include the effects of real interest rates, demographic factors, and per capita income on private saving, the relationship between growth and saving, and the extent to which private saving offsets movements in public (dis)saving. In Discussion Paper No. 1368, Paul Masson, Hossein Samiei and Research Associate Tamim Bayoumi extend the existing empirical knowledge of private saving behaviour by exploiting data on a large sample of industrial and developing countries, and by looking at a broad set of possible determinants of private saving. Both time-series and cross-section information is used, as the variability of potential explanatory variables is quite different in these two dimensions.

Several conclusions emerge clearly from the regressions, despite some heterogeneity in the results. First, there seems to be a substantial offset of changes in the government’s fiscal position from private saving, averaging 60%, but depending on whether those changes are due to government spending or tax changes. While this offset is large, it is considerably below 100%, implying that changes in the government’s fiscal position can have a significant impact on national saving, especially if they result from spending reductions. Thus, prospects for world saving depend importantly on decisions with respect to fiscal policies. Demographic effects are also an important determinant of private saving rates. The size of the effect of the dependency ratio on private saving is somewhat lower than in most previous studies that found that demographic variables had a significant impact on saving. Nevertheless, it suggests that the projected ageing of the population in most industrial countries will generate significant downward pressure on private saving rates over the next three decades. Developing countries show an opposite trend in the overall dependency ratio, however, despite an increase in those over 65, due to a decline in the proportion of those under 20. Hence the net effect on world saving is ambiguous. Further, increases in per capita GDP seem to increase saving at low income levels (relative to the United States), but decrease it at higher ones.

International Evidence on the Determinants of PRIVATE Saving
Paul R Masson, Tamim Bayoumi and Hossein Samiei