Saving and Growth: A Reinterpretation
Christopher D. Carroll
Johns Hopkins University - Department of Economics; Consumer Financial Protection Bureau; National Bureau of Economic Research (NBER)
David N. Weil
Brown University - Department of Economics; National Bureau of Economic Research (NBER)
NBER Working Paper No. w4470
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.
Number of Pages in PDF File: 100
Date posted: May 18, 2000
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