Recent Declines in the Savings Rate: a Life Cycle Perspective

  • Franco Modigliani
Part of the Central Issues in Contemporary Economic Theory and Policy book series

Abstract

In the course of the last three decades, the national saving to income ratio, which has traditionally been regarded as fairly stable at least in the medium run, has undergone profound changes, especially among the industrialized countries. These changes have tended to run in the same direction for all countries, namely down. While this development has been very negative for the world economy, as it has reduced the flow of resources available for investment and generally raised interest rates, it offers a unique opportunity for the scientist trying to validate—or reject—theories of aggregate saving behavior. The main purpose of this paper is to rely on this episode to test whether and how far it can be explained by the so-called Life Cycle Hypothesis (LCH). We propose to show that, relying on that framework, one can account fairly well for the unusual behavior of saving in recent decades.

Keywords

Income Turkey Expense Malaysia Egypt 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Bibliography

  1. [1]
    Aghevli B., Boughton James M., Montiel Peter J., Villanueva Delano, Woglom Geoffrey: «The Role of National Saving in the World Economy», Washington (DC), International Monetary Fund, Occasional Paper, no. 67, 1990.Google Scholar
  2. [2]
    Altonji J., Hayashi F., Kotlikoff L.: «Is the Extended Family Altruistically Linked?», NBER, Working Paper, no. 3046, 1989.CrossRefGoogle Scholar
  3. [3]
    Ando A., Modigliani F.: «The Life Cycle Hypothesis of Saving - Aggregate Implications of Tests», American Economic Review, vol. 1, no. 53, 1963.Google Scholar
  4. [4]
    Are Government Bonds Net Wealth?», Journal of Political Economy no. 82, November-December 1974.Google Scholar
  5. [5]
    Bosworth B.: The Global Decline in Saving: Some International Comparisons, Washington ( DC ), Brookings Institution, 1990.Google Scholar
  6. [6]
    Fisher Irving: The Theory of Interest, New York, Macmillan, 1930.Google Scholar
  7. [7]
    Friedmar Milton: A Theory of the Consumption Function, Princeton, Princeton University Press, 1957.Google Scholar
  8. [8]
    Gutso L., Jappelli T.: Labor Supply, Risk Sharing and Precautionary Saving, Roma, Banca d’Italia, 1990.Google Scholar
  9. [9]
    Houthakker H.: «On Some Determinants of Saving in Developed and Underdeveloped Countries», in ROBINSON E.A.C. (ed.): Problems in Economic Development, London, Macmillan, 1965.Google Scholar
  10. [10]
    Keynes J.M.: The General Theory of Employment, Interest and Money, New York, Harcourt Brace 1986.Google Scholar
  11. [11]
    Kotlikoff J.L.: «Intergenerational Transfer of Saving», The Journal of Economic Perspectives vol. 2, no. 2, 1988.Google Scholar
  12. [12]
    Modigliani F.: «The Life Cycle Hypothesis of Saving and Intercountry Differences in the Saving Ratio», in Eltis W., Scott M., Wolfe I. (eds.): Induction Growth and Trade, Oxford, Clarendon Press, 1970.Google Scholar
  13. [13]
    Modigliani F.: «Perché è diminuito it saggio di risparmio in Italia?», in Biasco S., Roncaglia A., Salvati M. (eds.): Instituzione e mercato sullo sviluppo economico, Rome, Laterza, 1990.Google Scholar
  14. [14]
    Modigliani F., Ando A.: «Some Reflections on Describing Structures of Finance Sectors», and with SHELL KARL: «Appendix», in Fromm G., Klein R. (eds.): The Brookings Model: Perspective and Recent Developments, Amsterdam, North Holland, American Elsevier, 1975.Google Scholar
  15. [15]
    Modigliani E., Blumberg R.: «Utility Analysis and the Aggregate Consumption Function: An Attempt at Integration», unpublished manuscript, 1954, published in The Collected Papers of Franco Modigliani, vol. 2, Cambridge, MIT Press, 1980.Google Scholar
  16. [16]
    Modigliani F., Jappelli T.: «Fiscal Policy and Saving in Italy since 1860», in Postin T., Flemming T., Gorini S. (eds.): Private Saving and Public Debt, New York, Blackwell, 1987.Google Scholar
  17. [17]
    Modigliani F., Sterling A.: «Government Debt, Government Spending and Private Sector Behavior Comment», American Economic Review, vol. 76, no. 5, 1986.Google Scholar
  18. [18]
    Sterling A.: An Investigation of the Determinants of the Long Run Savings Ratio, Submitted in partial fulfillment of the requirements for the degree of Bachelor of Science, Massachusetts Institute of Technology, 1977.Google Scholar

Copyright information

© Servizio Italiano Pubblicazioni Internazionali 1993

Authors and Affiliations

  • Franco Modigliani
    • 1
  1. 1.Massachusetts Institute of TechnologyUSA

Personalised recommendations