The Saving-Investment Nexus: Why it Matters and How it Works
No 1996-01, SCEPA working paper series. from Schwartz Center for Economic Policy Analysis (SCEPA), The New School
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
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Persistent link: https://EconPapers.repec.org/RePEc:epa:cepawp:1996-01
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