Working Paper: CEPR ID: DP5272
Authors: Francesco Giavazzi; Tullio Jappelli; Marco Pagano; Marina Benedetti
Abstract: Data revisions and the availability of a longer sample offer the opportunity to reconsider the empirical findings that suggest that in the OECD countries national saving responds non-monotonically to fiscal policy. The paper confirms that the circumstance most likely to give rise to a non-monotonic response of national saving to a fiscal impulse is a 'large and persistent impulse', defined as one in which the full employment surplus, as a percent of potential output, changes by at least 1.5 percentage points per year over a two-year period. This particular circumstance remains the only statistically significant one even when we allow for non-monotonic responses to arise when public debt is growing rapidly or interest rate spreads are widening. We find that non-monotonic responses are similar for fiscal contractions and expansions. In particular, an increase in net taxes has no effect on national saving during large fiscal contractions or expansions. For government consumption there is a large, albeit in some specifications less then complete, offset during expansions or contractions.
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 |
|---|---|
| fiscal policy impulses (E62) | national saving (D14) |
| large and persistent fiscal changes (E62) | national saving (D14) |
| net taxes (H29) | national saving (D14) |
| large fiscal contractions (E62) | national saving (D14) |
| fiscal expansions (E62) | national saving (D14) |
| government consumption (E20) | national saving (D14) |
| changes in net taxes (H29) | nonmonotonic effects (E71) |
| rapidly growing public debt (H69) | nonmonotonic responses (D91) |