The effect of the Paradox of thrift on modern Russia and the ways of countering it with social fiscal instruments

Abstract

The article explains the essence of the paradox of thrift and the reasons why it currently manifests itself in Russia and in a number of other countries, with an emphasis on the excessive income differentiation and insufficiency of social guarantees to the population, together with the policy of financial authorities aiming at the value increase of the sovereign funds while unemployment is still high. The Classical relationship between savings, investment, and GDP growth is contrasted with the Keynesian one – consumption – GDP growth – investment – while proving the much greater applicability of the latter to the assessment of current situation in Russia. The evolution of the share of savings in the Russian national product over the past three decades is presented, indicating the factors that determine it. Based on that, the author substantiates the need for dynamic optimization of the relationship between consumption and savings to accelerate the growth of Russian economy. To neutralize the paradox of thrift, the author suggests the ways of increasing the effectiveness of state social policy through a transition from the categorical principle of its formation to the principle of targeting and prioritization.