Working Paper: NBER ID: w4470
Authors: Christopher D. Carroll; David N. Weil
Abstract: We examine the relationship between income growth and saving using both cross-country and household data. At the aggregate level, we find that growth Granger causes saving, but that saving does not Granger cause growth. Using household data, we find that households with predictably higher income growth save more than households with predictably low growth. We argue that standard Permanent Income models of consumption cannot explain these findings, but that a model of consumption with habit formation may. The positive effect of growth on saving implies that previous estimates of the effect of saving on growth may be overstated.
Keywords: saving; growth; income growth; household data; cross-country data
JEL Codes: E21; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income growth (O49) | saving (E21) |