Determinants of Household Saving in Taiwan: Growth, Demography and Public Policy

Abstract

This article examines the determinants of household saving in the process of economic development, in the light of the Taiwanese experience during the period 1952–99. The methodology involves the estimation of a saving rate function derived within the life-cycle framework. It is found that the household saving rate rises with both the level and the rate of growth of household disposable income. The real deposit rate has a significant positive impact, but the magnitude of the impact is modest. Public saving seems to crowd out private saving, but less than proportionately. While both old- and young-dependency in population have a negative impact on the saving rate, the magnitude of the impact of the former is far greater than that of the latter. Increased availability of social security provisions and enhanced credit availability also seem to reduce saving. As regards methodological implications, the study casts doubt on the usual practice of lumping together public, corporate and household savings in saving analysis, and points to the need for separating young dependence and ageing as two distinct aspects of the influence of population dynamics on saving behaviour.