Gross Saving: A Comparison

I’m teaching public finance this term and just finished a discussion of the economic effects of income taxation on saving using a simple two period model of inter-temporal consumption.  I rounded out the discussion with a comparison of personal savings rates between Canada and the United States and how their savings rates have converged since the early 1990s.  Canadian personal savings rates used to be much higher than American and while both have declined and converged, American personal saving rates are now a bit higher than Canadian.

Of course, when one looks at savings, the other comparison that can be made is with a broader measure of savings or national savings.   Gross national saving would simply be national income minus consumption and government purchases or the sum of private and public sector saving.  When this definition of saving is used, Canadian savings rates are still much higher than American ones.  According to data from the IMF (World Economic Outlook Database) Canada’s gross national saving rate in 2012 was 21 percent compared 13 percent for the United States.  If one goes back to the 1980s, Canada’s gross national saving rate was a bit higher than the US one and declined along with the American one until the mid 1990s.  (See Figure 1) Since, the mid 1990s, Canada’s gross national saving rate has diverged from the America one – rising while the American one has fallen.  Thus you have an interesting situation – since the early 1990s, personal saving rates have converged whereas gross savings rates have diverged between the two countries.  It would appear that Canada has made up for its deficiency in personal savings rates with increases in private sector and public sector savings - at least prior to 2009.  I suppose all that “dead cash” being accumulated by the corporate sector has been helpful.

Of course, while Canada is doing better than the United States when it comes to gross savings rates, it is in the middle of the pack when compared to the advanced economies and the G-7.  Interestingly enough, we are doing almost as well as Japan, which traditionally has been known for high savings rates. As Figure 2 shows, the top performers there are Singapore, Norway, Korea (South) and Taiwan.

Comments

[genauer]

the point most people in europe are way more concerned about is, that

the saving / debt distribution in the US is getting increasingly unequal, and geared to the very wrong people.

http://www.washingtonpost.com/business/economy/many-americans-accumulating-debt-faster-than-theyre-saving-for-retirement/2013/10/23/b7a9c85e-3b3e-11e3-b6a9-da62c264f40e_story.html?tid=auto_complete

This replicates, what happened after 1990 in Japan, with nominal high gross savings, but terrible, and even getting worse household debt, see OECD Annex 58 on that.

That is what people here always said, since hundred years, that the folly of aggregate numbers hide developing social crashes.

At some point the unsustainable private debt of some will then be converted into public debt, most likely via the bank path.

Do you in Canada want to go the path of Germany or of Japan? Your Choice, I believe you still have it for a few years.

[Livio Di Matteo]

Well I certainly agree with the point about aggregate numbers. I was bit surprised to see that Jspan's aggregate saving rate was so close to Canada's given its longer term malaise. Obviously the saving rate is not the only determinant of longer term performance given Germany and Canada have fared better despite similar savings rates.

[westslope]

Interesting how some of the world's wealthiest nations exhibit the highest gross savings rates.

I have to ask. Is the TFSA program noticeably affecting private savings rates in Canada? TFSA = tax free savings account.

[genauer]

Livio,

Just because these thing are getting always mixed up, when people talke with each other:

a) I was looking at "Annex Table 58. Household wealth and indebtedness"
Absolute Stock, and not relative flow (changes)

especially the delta of [Total] Liabilities"
[versus] "of which: Mortgages" and some seemingly little innocent 30 % hide a lot more personal drama, when things go ugly.

b) the models how to calculate forward (national) saving stocks ("wealth") from savings rate , I have found pretty useless, and I did look into that in significant detail, trying to "just fix" what others have done before.

Anybody interested to discuss the Solow 1956 / 1957 papers "sine ira et studio" as a kind of paper analysis exercise ?

I would love this.

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