The Saving-Investment Nexus: Why it Matters and How it Works

Thomas Palley

No 1996-01, SCEPA working paper series. from Schwartz Center for Economic Policy Analysis (SCEPA), The New School

Abstract: The causal relation between saving and investment has momentous implications for fiscal policy. If saving causes investment, this lends support for policies of fiscal austerity. Neither the national income accounts nor economic theory can resolve issues of causality. This paper presents a VAR analysis that examines the saving - investment relation. The principal findings are that investment spending is negatively impacted by personal saving and independent of government saving. Increases in personal saving have a negative effect on government saving. These patterns are consistent with the Keynesian paradox of thrift.

Keywords: saving; investment; fiscal policy; paradox of thrift (search for similar items in EconPapers)
JEL-codes: E2 E6 H6 (search for similar items in EconPapers)
Pages: 28 pages
Date: 1996
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:epa:cepawp:1996-01

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