The savings multiplier |
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| Institution: | 1. Department of Economics, University of Oslo, Norway;2. Department of Economics, Norwegian University of Science and Technology, Norway;3. School of Economics, University of East Anglia, Norwich, United Kingdom;1. University of California, Santa Barbara, USA;2. Federal Reserve Bank of Dallas, Research Department, 2200 N. Pearl St., Dallas, TX 75201, USA;1. IIES, Stockholm University, S-106 91 Stockholm, Sweden;2. Ifo Institute – Leibniz Institute for Economic Research at the University of Munich, Germany;1. Banque de France, France;2. Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, United States;3. Deutsche Bundesbank, Germany;1. Hong Kong University of Science and Technology, Hong Kong;2. Department of Economics, Boston University, 270 Bay State Road, Boston, MA 02215, USA;3. Central Bank of Chile, Chile;4. Toulouse School of Economics, France;1. University of Iowa, United States;2. University of Southern California, United States;3. University of British Columbia, Canada;4. NBER, United States;1. Bank of Canada, 234 Laurier Avenue West Ottawa, Ontario, Canada K1A 0G9;2. European University Institute, Florence, Italy;3. Universitat Autonoma de Barcelona, Barcelona, Spain;4. CEPR, United Kingdom |
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| Abstract: | A theory of macroeconomic development based on the novel concept of savings multiplier is developed. Capital accumulation changes relative prices, amplifying incentives to save as the economy grows. The savings multiplier hinges on two mechanisms. First, accumulation raises wages and leads to redistribution from the consuming old to the saving young. Second, higher wages raise the price of old-age care and, in anticipation of this, the young save more. Our theory captures important aspects of China?s development and suggests new channels through which the one child policy and the dismantling of social benefits have fueled China?s savings rates. |
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| Keywords: | Intertemporal choices China?s savings puzzle Overlapping generations |
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