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Public and Private Saving and Investment
Department of Economics, Boston University.
Department of Economics, Boston College.
1993 (English)Report (Other academic)
Abstract [en]

Several authors have shown that models with perfect international capital mobility can generate high correlations between aggregate savings and investment, as observed in the data. In this paper we decompose aggregate saving and investment into their two component parts, private and public. This leads to some striking observations. In almost all of the 15 OECD countries we investigate during the period 1975-1989, the private sector saving-investment gap closely mirrors the government sector saving-investment gap. Moreover, unlike the large aggregate saving investment correlations, private sector saving-investment correlations are on average close to zero. The paper investigates these and other moments associated with public and private saving and investment in the context of models with perfect capital mobility. The paper devotes significant attention to modeling the government sector. Rules for taxation, government consumption and investment are specified, estimated, and fed into the model simulations. We find that while models with fiscal, technology and interest rate shocks are able to generate negative correlations between the public and the private sector saving-investment gaps, these correlations still fall significantly short of the very negative correlations observed in the data. Moreover, the models are not able to generate correlations between private saving and investment that are much lower than those between total saving and investment.

Place, publisher, year, edition, pages
Stockholm: IIES , 1993. , 52 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 546
National Category
URN: urn:nbn:se:su:diva-41865OAI: diva2:338047
Published in connection with a visit at the IIES.Available from: 2010-08-10 Created: 2010-08-10 Last updated: 2010-08-10

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