Front Matter Page
Asia and Pacific Department
Authorized for distribution by Joshua Felman
Contents
Summary
I. Introduction
II. Trends in Household Saving in OECD Countries
III. Determinants of Household Saving
IV. Data Analysis, Estimation Issues, and Estimation Results
A. Cross-Section Estimations
B. Panel Estimations
V. Conclusions
Charts
1. Tax Structure in 21 OECD Countries
2. Transfers in the OECD
Tables
1. Household Saving Rates in OECD Countries
2. Main Explanatory Variables, 1975–95
3. Analysis of Variation: Cross-Section and Time-Series Variation
4. Results of Cross-Country Regressions
5. Panel Regression Results
Appendix
Data Description and Sources
References
SUMMARY
This paper adds to the existing literature on the empirical determinants of saving behavior in two ways. First, it focuses on household, rather than aggregate, private saving in a cross-country framework. Second, it considers the possible impact of the tax and the social security and welfare systems on household saving behavior.
Cross-section and panel estimation techniques are applied to data from 21 OECD countries over the period 1975–95. Variables that capture the structure of the tax system and the financing and generosity of the social security and welfare system are added to the set of potential explanatory variables. The results indicate that there is an important role for public and corporate saving, growth, and demographics in influencing household saving, while some role is also found for inflation, unemployment, the real interest rate, and financial deregulation. The results also suggest that the tax and the social security and welfare systems have an important impact on household saving. Specifically, a higher reliance on direct income taxes as opposed to indirect taxes appears to be associated with lower saving, while higher government transfers to households are also associated with lower saving.
These findings suggest that public policy has an influence on the household saving decision, not only through the level of public saving itself, but also through the tax and social security systems. Consequently, the impact on household saving is one factor that needs to be considered in designing, or changing, tax and social security systems.