Working Paper: CEPR ID: DP2374
Authors: Francesco Giavazzi; Tullio Jappelli; Marco Pagano
Abstract: Several recent studies imply that the response of national saving to fiscal policy is non-monotonic. In this paper, we use two data sets to search for the circumstances in which such non-monotonic responses arise: one refers to a sample of OECD countries, as in previous studies, and one to a sample of developing countries, using recent World Bank data. We find that in both samples non-monotonic effects tend to be associated with large and persistent fiscal impulses. In the OECD such responses are stronger for fiscal contractions than for fiscal expansions: during large fiscal contractions an increase in net taxes has no effect on national saving. High or rapidly growing public debt does not appear to be a good predictor of non-monotonic effects. Using the World Bank data, the situations in which the non-monotonic response of national saving to fiscal policy are not limited to large fiscal contractions. They also occur during large fiscal expansions, and in periods in which debt is accumulating rapidly, regardless of its initial level.
Keywords: Fiscal Policy; National Saving
JEL Codes: E21; E62; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| large fiscal contractions (E62) | nonmonotonic responses in national saving (E21) |
| net taxes increase (H29) | little or no effect on national saving during large fiscal contractions (E62) |
| high or rapidly growing public debt (H69) | not a reliable predictor of nonlinear responses (C29) |
| large fiscal contractions (E62) | stronger nonlinear responses than fiscal expansions (H39) |
| nonmonotonic responses (D91) | occur during fiscal expansions (E62) |
| nonmonotonic responses (D91) | occur during rapid public debt accumulation (H63) |