The Economics of Saving

350 Pages·1993·7.878 MB·English

by  James H. Gapinski (auth.), James H. Gapinski (eds.)

The Economics of Saving
Recent Economic Thought Series
Editor:
Warren G. Samuels
Michigan State University
East Lansing, Michigan, U.S.A.
Other books in the series:
Feiwel, G.: Samuelson and Neoclassical Economics
Wade, L.: Political Economy: Modern Views
Zimbalist, A.: Comparative Economic Systems: Recent Views
Darity, W.: Labor Economics: Modern Views
Jarsulic, M.: Money and Macro Policy
Samuelson, L.: Microeconomic Theory
Bromley, D.: Natural Resource Economics: Policy Problems and Contemporary
Analysis
Mirowski, P.: The Reconstruction of Economic Theory
Field, A.: The Future of Economic History
Lowry, S.: Pre-Classical Economic Thought
Officer, L.: International Economics
Asimakopulos, A.: Theories of Income Distribution
Earl, P.: Psychological Economics: Development, Tensions, Prospects
Thweatt, W.: Classical Political Economy
Peterson, W.: Market Power and the Economy
DeGregori, T.: Development Economics
Nowotny, K.: Public Utility Regulation
Horowitz, I.: Decision Theory
Mercuro, N.: Law and Economics
Hennings, K. and Samuels, W.: Neoclassical Economic Theory, 1870 to 1930
Samuels, W.: Economics as Discourse
Lutz, M.: Social Economics
Weimer, D.: Policy Analysis and Economics
Bromley, D. and Segerson, K.: The Social Response to Environmental Risk
Roberts, B. and Feiner, S.: Radical Economics
Mercuro, N.: Taking Property and Just Compensation
de Marchi, N.: Post-Popperian Methodology of Economics
This series is devoted to works that present divergent views on the
development. prospects. and tensions within some important research
areas of international economic thought. Among the fields covered are
macromonetary policy. public finance. labor and political economy.
The emphasis of the series is on providing a cr~ical. constructive view
of each of these fields. as well as a forum through which leading
scholars of international reputation may voice their perspectives on
important related issues. Each volume in the series will be self·
contained; together these volumes will provide dramatic evidence of
the variety of economic thought ~hin the scholarly community.
The Economics of Saving
edited by
James H. Gapinski
Florida State University
~.
"
Springer Science+Business Media, LLC
Ubrary of Congress Cataloging-in-Publication Data
The Economics 01 saving/edited by James H. Gapinski.
p. cm.-(Recent economic thought series)
Includes bibliographical relerences and index.
ISBN 978-90-481-5794-5 ISBN 978-94-017-3294-9 (eBook)
DOI 10.1007/978-94-017-3294-9
1. Saving and investment - United States. 2. Saving and
investment. 1. Gapinski. James H. II. Series.
HC110.S3E251992
332'.0415-dc20 92-18281
CIP
Copyright © 1993 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers in 1993
AII rights reserved. No part 01 this publication may be reproduced.
stored in a retrieval system or transmitted in any lorm or by any means.
mechanical. photo-copying. recording. or otherwise. wilhout the prior
written permission 01 the publisher.
Springer Science+Business Media. LLC.
Printed on acid-free papar.
To Nancy
for enduring
Contents
List of Tables xi
List of Figures xiii
Contributing Authors xv
Preface xvii
1
Questions on the Economics of Saving
James H. Gapinski
1. Principal Interrogatories 1
2. Saving Profiles 1
3. Explaining Saving 6
4. Fiscal Deficits and Saving 8
5. Ricardian Equivalence 11
5.1. Theoretical Considerations 11
5.2. Tests Based on Consumption 13
5.3. Tests Based on Saving 21
6. Stagflation, Supply-Side, and Saving 25
7. Income Distribution 28
8. Growth and Transition 32
9. Economic Development 37
10. Answers, Harmonies, and Tensions 39
2
Toward a Theory of Saving 47
David J. Smyth
1. The Keynesian Saving Function 48
2. Early Saving Function Estimates 50
vii
viii CONTENTS
2.1. Cross-Sectional Estimates of the Keynesian Consumption
Function 50
2.2. Time Series Estimates of the Keynesian Consumption Function 51
3. Short-Run and Long-Run Behavior 54
3.1. The Kuznets and Goldsmith Evidence 54
3.2. The Trend in the Saving Function Hypothesis 55
3.3. Short-Run Variability in the Marginal Propensity to Save 55
3.4. Saving Phenomena to be Explained 56
3.5. The Measurement of Saving, Consumption, and Disposable
Income 57
4. The Relative Income Hypothesis 57
4.1. Cross-Sectional Form of the Relative Income Theory 58
4.2. Ratchet Models 59
5. Saving as a Multiperiod Decision 60
6. The Permanent Income Hypothesis 62
6.1. Present Value, Consumption, and Saving 62
6.2. Permanent and Transitory Income and Consumption 63
6.3. A Hypothetical Example of the Permanent Income Model 64
6.4. Friedman's Evidence on the Permanent Income Hypothesis 67
6.5. Further Empirical Evidence on the Permanent Income
Hypothesis 68
7. The Life Cycle Hypothesis 70
7.1. Income and Consumption over a Lifetime 71
7.2. Evidence on the Life Cycle Theory: Cross Section 73
7.3. Evidence on the Life Cycle Theory: Time Series 74
8. A Wealth-Adjustment Model 76
9. Saving Functions Using Quarterly Postwar National Income Accounts
D_ n
n
9.1. The Measurement of Consumption and Saving
9.2. The Behavior of Saving, Quarterly Data, 19471V to 1990lV 78
9.3. Alternative Saving Functions, Quarterly Data, 19531 to 1990lV 80
10. Error Correction Models 82
11. Rational Expectations Models 83
12. Inflation and the Saving Function 85
13. Conclusions 88
Commentary by Marjorie Flavin 93
Commentary by Edward B. Montgomery 102
3
National Saving and the Twin Deficits: Myth and Reality 109
Robert Eisner and Paul J. Pieper
1. The Measurement of Saving 109
2. Deficits and the Saving-Investment Identity 112
3. U.S. Investment in the Eighties-A Historical Perspective 116
4. The Effect of Deficits on Investment - An Empirical Analysis 119
CONTENTS ix
5. Conclusion 128
Appendix: Data Sources 130
Commentary by Ali F. Darrat 134
Commentary by Dennis Placone and Holley Ulbrich 145
4
Reaganomics, Saving, and the Casino Effect 153
E. Ray Canterbery
1. Reaganomics and the Supply-Siders 153
2. Say's Law Embued with Entrepreneurial Spirit 154
3. Truth in Taxes and in Lending 155
4. The Measurement of Saving 159
5. Keynes Redux 160
6. A Business and Household Net Worth Approach 164
7. The Casino Effect of T 169
8. Conclusions 173
Commentary by Robert S. Chirinko 176
Commentary by R. Jeffery Green 187
5
Saving and Distribution 193
Gian S. Sahota
1. Main Theories of Saving 194
1.1. Recent Debate: Focus on Intertemporal Theories of Saving 194
1.2. Early Postwar Debate: Intragenerational Theories 197
2. Income Distribution Theories 198
2.1. Functional Income Distribution Theories 198
2.2. Personal Income Distribution Theories 201
3. Relationship Between Saving and Income Distribution and the
Impact of Policies 202
3.1. Rival Theories of Saving and Distribution 203
3.2. Impact of Policies 206
3.3. Uncertainty, Taxation, and Saving and Distribution 210
3.4. Relationship of LDC's Domestic Saving to the Inflow of
Foreign Saving and Distribution 211
3.5. Any Estimate of Net Causal Relationship Between Saving and
Distribution? 213
4. Conclusions 215
Commentary by William A. Darity, Jr. 232
Commentary by Paul J. Taubman 239
x CONTENTS
6
Increasing the Saving Rate: An Analysis of the Transition Path 241
Laurence S. Seidman and Kenneth A. Lewis
1. The Sato Controversy Revisited 241
2. Empirical Analysis: A Continuous Time Model 243
3. Empirical Analysis: A Discrete Period Simulation Model 246
4. The Impact on the Wage of Low-Educated Labor 248
5. Conclusion 249
Commentary by Winston W. Chang 253
Commentary by John Conlisk 262
7
Saving in the Development Process 279
T. N. Srinivasan
1. Introduction 279
2. Savings and Income in Developing Countries: Data Problems 287
3. Saving and Investment: Empirical Evidence on Trends and
Determinants 292
4. Informal Credit and Insurance Markets 302
5. Conclusions and Policy Implications 306
Commentary by Mark Gersovitz 312
Commentary by Christina H. Paxson 315
About the Authors 321
Name Index 327
Subject Index 332
List of Tables
1-1. Saving Rates in the United States 2
1-2. Saving Rates in Various Developed Countries 3
1-3. Consumption-Based Tests of Ricardian Equivalence for the
United States 15
1-4. Further Consumption-Based Tests of Ricardian Equivalence for
the United States 18
1-5. Consumption-Based Tests of Ricardian Equivalence for Various
Developed Countries 20
1-6. Effect of Public Saving on Private Saving in the United States 22
1-7. Effect of Public Saving on Private Saving in Various Developed
Countries 24
1-8. Time When Adjustment to the New Growth Path Becomes
Virtually Complete 35
2-1. Average Propensities to Save 55
2-2. Hypothetical Permanent Income Model 65
2-3. Alternative Saving Functions, Quarterly Data, 1947IV to 1990IV 80
2-4. Tests for "Excess Sensitivity": 19471V to 1990IV 86
2-5. Inflation in the Wealth Adjustment Model: 1947IV to 1990IV 88
3-1. Net Saving and Investment Account, 1990 110
3-2. Federal Government Investment by Type, 1989 111
3-3. Net Foreign Investment, 1990 115
3-4. Measures of Real Gross Investment, Mean Percentage of GNP 117
3-5. Adjusted Deficit and Private Tangible Investment 120
3-6. Adjusted Deficit, Change in Monetary Base, Real Exchange
Rate, and Private Tangible Investment 123
3-7. Adjusted Deficit and Public Investment 124
3-8. Adjusted Deficit, Change in Monetary Base, and Public
Investment 125
3-9. Adjusted Deficit, Change in Monetary Base, Real Exchange
Rate, and Domestic and Total Tangible Investment 127
xi