Savings Gap Research Articles

Current Account Deficit, Budget Deficit and Savings Gap: Is the Twin or Triplet Deficit Hypothesis Valid in G7 Countries?

The purpose of this study is to determine the validity of the triplet deficit hypothesis, which means the savings gap and budget deficit effect on the current account deficit. The empirical model is estimated for the G7 countries during the period between 1994 and 2011. The findings show that budget deficit and savings gap have important role in current account deficit in terms of estimator results. Moreover, bi-directional causality between the current account deficit and the savings gap and between the budget deficit and the savings gap are determined. So, especially the savings gap has an important effect on the current account deficit and the budget deficit. That is, triplet deficit hypothesis is valid in G7. Moreover, traditional approach is also valid since the causality is found between the current account deficit and budget deficit. Thereby, the authors conclude that the choice of statistical tools in analysing the nature of relationship among the current account deficit, the budget deficit, and the savings gap may play a key role for policy makers.

Improving energy savings in the South Korean apartment housing sector

Since ‘Low Carbon and Green Growth’ was published in 2008, the South Korean government has attempted to achieve fuel energy savings and carbon dioxide reduction for the housing sector. The green housing regulation established in 2009 required all construction companies to build new housing with 15% total energy savings compared with housing built before 2008. The authors surveyed the annual heating and hot water consumption data for 795 housing units with 84 m2 net area in two estates to determine the energy savings gap between design performance and actual performance. After adjustment for outside temperature influence, the thermal energy (heating and hot water) savings gap was calculated to be about 17% in both the middle and south areas of South Korea. The analysed data in this study will be used with feedback data to design future green housing and will serve to amend the government policy of energy savings of 40% in 2015 and 70% in 2018, and to analyse the cost benefit for residents.

The Savings Gap in Hungary

In a simple cohort model we project current per capita age-profiles of labour income and consumption to the future and combine them with the expected future age composition of society. We use Hungarian data of 2012. Due to a shrinking and ageing population this exercise predicts a growing gap between labour income and consumption, which have to be covered by asset-based revenues. We apply two balancing items, a windfall capital endowment in the base year and a gradual capital accumulation through higher savings. We also quantify how much can the household economy, an integral but unregistered part of modern economies, absorb of the effects of ageing. In addition, we also feed the model with 1995 demography. The two decades between the mid-1990s and the mid-2010s offered a special demographic opportunity for Hungary. This period coincided with the botched prefunding experiment in the public pension system. We demonstrate the potential of this missed opportunity.

Understanding China’s external imbalances

The paper is intended to provide a comprehensive explanation of China’s external imbalances, which are characterized by current account surplus and financial account surplus. The thrust of the paper is that China’s current account surplus is not simply an effect of the savings gap. Rather, it is a result of complicated interactions among various factors in a dynamic fashion. Hence, to keep the current account surplus-to-GDP ratio at a rational level, the implementation of comprehensive policies that address all relevant factors at the same time as well as fundamental restructuring are necessary.

Credit-Less Recoveries: The Role of Investment-Savings Imbalances

This paper argues that the investment–savings imbalances of households and companies play an important role in determining the probability that an economy experiences a credit-less recovery, following a recession. The investment¬–savings gap determines the need for “external” finance of the private sector in the form of either bank credit or capital market financing. Using a broad dataset covering 96 countries and 272 recovery episodes, we provide empirical evidence that credit-less recoveries are indeed associated with both low and declining financing needs of the private sector, as proxied by the investment-savings gap at the trough of the recession and its adjustment during the downturn. We show that this reflects a rebalancing of wealth towards financial assets during the downturn which can subsequently be used to finance real investment during the recovery stage, even in the absence of positive bank credit flows. Lastly, we provide empirical evidence that, controlling for the change in investment-savings imbalances, economies whose economic downturn was preceded by a credit boom are more likely to experience a credit-less recovery.

Foreign Direct Investment Inflow, Volatility, and Domestic Investment in West Africa

This study empirically examined the effect of foreign direct investment inflow and its volatility on domestic investment in the ECOWAS region as FDI inflow is theoretical recognized as an important catalyst to bridge the Savings gap. The recent Panel Data Cointegration technique of estimation was employed in the study given the possibilities of panel data based studies to be associated with unit root problems as shown by experts in the methodology. Data for the study covered the period 1970-2008 and were extracted from the UN statistics data base and the World Development Indicator, 2009. The results of the empirical analysis revealed that foreign direct investment inflow substituted domestic investment in the West African region. FDI volatility was also found to hamper domestic investment in the region. From policy perspective, since most of the West African countries are faced with poor investment climate and low technical know on the part of the citizenry to harness the spillover effects of FDI inflow, it is therefore recommended that bolstering the investment climate and proper manpower training and development are vital to securing the gains from FDI inflow couple with efforts geared towards attracting FDI to manufacturing sector that is less prone to world price volatility.

Unravelling projected energy savings in 2020 of EU Member States using decomposition analyses

The objective of this paper is to provide deeper insights into the energy savings efforts of EU Member States by exploring the impact of new policies, the recent economic recession and other effects, using decomposition analyses. The results of the study show that the difference between the two official EU baseline projections, PRIMES-2007 (pre-recession, pre-Climate and Energy Package) and PRIMES-2013 (post-recession, including the new policies of the Package), can be explained by the combined impact of the new policies, the economic recession and other effects such as differences in energy prices. However, the impact of the other effects remains largely unexplained in the official PRIMES-2013 report and is clouding the right interpretation of the policy effect. By providing these insights, this study could help policy-makers in better understanding scenario outcomes and the impact of their policies.If EU Member States would be able to achieve their 2020 energy savings targets, then an important step has been taken to bridge the energy savings gap. Since the economic recession plays a major role in bridging this gap and economic recovery is aimed for, further intensification of energy efficiency policies is crucial to contribute to the GHG reduction target for 2030 and beyond.

Macroeconomic Determinants of Foreign Direct Investment and Economic Transformation in Nigeria, 1981–2010: An Empirical Evidence

Foreign direct investment is identified as a major catalyst of economic growth and transformation in developing economies of the world including Nigeria given the investment–savings gap. Over the years, Nigeria has witnessed sustained increase in foreign direct investment in the economy. It is however worrisome that it has not been able to transform the economy to any significant level. Consistent efforts have been made by successive governments in Nigeria that focus on policies that would attract foreign direct investment into the economy but the impact has been dismal. Consequently, the country is still characterised by a high level of unemployment, unstable prices, low per capita income, exchange rate volatility, external imbalances and prevalence of a poverty situation. This article aims at determining the macroeconomic determinants of foreign direct investment and its impact on economic transformation in Nigeria. Secondary data for the period 1981–2011 was used for the investigation. Time series estimates are obtained using Ordinary Least Squares (OLS) methodology which includes: stationary and co-integration tests. It was discovered that market size (GDP), human capital (HCAP), infrastructural development (INFRADEV), inflation (CPI) and index of energy consumption (IEC) are positively related to foreign direct investment in Nigeria. Unstable exchange rates (NEXR), interest rate (INT), under developed financial sector (BSTCR) and low per capita incomes have had negative impact on Foreign Direct Investment in the economy. The research recommends increase in energy consumption through regular supply of electricity, increase in GDP, development of human capital and a critical infrastructure to create a competitive and conducive business environment as well as reduction of exchange rate instability, interest rate distortions and development of the financial sector for a meaningful transformation of the Nigerian economy.

Predicting savings and mental accounting among adolescents: The case of college

In this study we examine predictors of adolescents' savings account ownership and use of mental accounting with a nationally representative, longitudinal sample of 744 adolescents ages 12 to 15 using Panel Study of Income Dynamics and Child Development Supplement data. We find sizable savings gaps along class lines. Further, findings suggest adolescents are more likely to have savings and use mental accounting when their parents have higher levels of education and have savings for them. Given that parents' education level and parents' savings for their child are directly related to adolescents' own savings, we suggest that traditional banking markets may not be able to equalize the advantage provided by having savings as an adolescent. ► This study predicts adolescents' savings and mental accounting at ages 12 to 15. ► Panel Study of Income Dynamics and Child Development Supplement data is used. ► Gaps in adolescents' savings and mental accounting exist along class lines. ► Head's education level and parents' savings significantly predict both outcomes. ► Institutions may facilitate adolescents' savings and mental accounting.

Income Tax Fraud: Estimations of Its Dimensions; Its Economic Consequences and a Tax Reform Proposal

Despite considerable improvements in public finance since 2001, the GDP ratio of the budget and public deficits are expected, respectively, to be around 2% and 6% in 2011. Apparently there is no room left for further reductions in any of the main items of public expenditures. So, to further reduce the public deficit, Turkey must increase its public revenues the GDP ratio of which is less than half of that of the EU and the OECD average. The problem lies in the dearth of direct tax revenues and of personal income tax receipts which nowadays stand at 0.047GDP of which 91.7% is paid by wage and salary recipients. All the rest of the recipients of taxable personal income (BTGVM) declare their before tax income is 2% of the GDP and end up paying the ludicrous sum of 0.035% of the GDP in personal income taxes. This implies that these persons actually earn, not 2% but 26%-30% of the GDP. Using detailed statistics released by the Finance Ministry, tabulating the average earnings reported and the income taxes paid by 46 groups of tax-payers categorized by “field of activity” and the average income tax-rate incurred by each category, the authors first make micro based analyses and then approach the same issue using National Income accounts. In both cases they reach similar results: that this class of citizens are fraudulently reporting only 1/13th to 1/15th of their before tax income and that the earned but unreported income in Turkey is no less than 0.3GDP when unreported corporate profits are also included. These estimations by the authors are confirmed by the fact that, the National Income Accounts was recently “corrected” officially, by the creation a new GDP series that added 30%-33% to the old series. There is another sour-spot in the tax system: The de-jure personal income tax schedule direly need an overhaul because it starts by taxing the minimum wage income and less at a whopping 15% and it swiftly shoots up to the marginal rate of 35% at a very low level of pre-tax income of only 28,000 USD per year which happens to be the maximum marginal rate applied to even multi-millionaires. The authors suggest that, if a much more progressive de-jure income tax schedule which starts with 0 or 1% rate for incomes below the minimum wage (5,000 USD), which reaches the present maximum of 35% marginal rate at about 70,000 USD (instead of the present 28,000) and which rises to about 60% for the highest income-levels and if simultaneously the necessary judicial and institutional measures were taken to effectively minimize the colossal size of “earned but unreported and hence untaxed incomes”, then Turkey would be able to increase its direct-income tax revenues (cet.par.) by no less than 10%-12% of GDP. The authors then argue that if both were accomplished, not only the public deficits would be cet.par., minimized, reducing inflation and interest rates as well as the domestic savings gap (thus enhancing economic stability) but also Turkey would increase her public

Does Calculating Retirement Needs Boost Retirement Savings?

Calculating savings needs is often viewed as an essential first step in planning. Yet, little empirical evidence exists to support the value of this activity. This case study examines the connection between calculating savings needs and savings through analysis of an online survey of benefitseligible employees at a large Mountain West university. Controlling for a variety of possible covariates, and using an instrumental variable approach, the case study shows that having estimated a savings target increases self-reported savings. The results provide support for financial educators and planners in their efforts to encourage people to estimate their needs early in the planning process. ********** Calculating the amount of money a person needs to accumulate by the time of is typically considered one of the first, if not the first step, in the planning process (Garman and Forgue 2010; Goff and Scott 1995). Accordingly, many free and easy-to-use calculators are available; and if these calculators are too daunting, one can just multiply annual gross income by twenty to get a ballpark estimate (Sheard 2000). Yet, fewer than half of US households report having tried to calculate much money they need to save for a comfortable (Helman, Copeland, and VanDerhei 2010). One reason why people may fail to estimate their needed nest egg is a lack of evidence that this exercise is valuable. Indeed, there is not a strong research base documenting the value of calculating the amount of money required for a comfortable retirement. It is even conceivable that calculating needs could discourage saving activities by identifying a savings gap that appears unbridgeable. The purpose of this article is to investigate whether evidence supports the payoff in terms of increased saving of calculating needs. To answer this question properly, one must account for possible endogeneity, i.e., that more savings may also increase the likelihood of making the calculation. LITERATURE REVIEW A few studies have measured whether individuals calculate the amount of money needed to retire comfortably. The most important of these measurement efforts is that of the Employee Benefits Research Institute (EBRI), which has asked this type of question in national surveys for almost 20 years. In the 2010 survey, 46% of respondents indicated that they and/or their spouse had figured out how much money you will need to have saved by the time you retire so that you can live comfortably in retirement (Helman, Copeland, and VanDerhei 2010). Ameriprise Financial asked a similar needs calculation question in 2005 and again in 2010 of national samples. In the more recent survey, 54% of preretirees said they had determined the amount of money they needed to save for retirement. In another study conducted in 2009, 42% of a national sample claimed they had tried to figure out much they would need to save for (Applied Research & Consulting LLC 2009). Predictors of Estimating Retirement Savings Needs Knowing the characteristics that predispose people to estimate their needs is interesting in its own right, but it is also important for unraveling the cause-and-effect nature of any relationship between calculating needs and other planning variables. EBRI provides limited bivariate information on the demographic characteristics that predict whether a person has calculated much she/he needs to save for retirement. In the 2010 survey, there are no differences between men and women in this respect (Gender Comparisons Among Workers 2010). Younger workers (aged 24-34) are far less likely to have estimated their goal than older cohorts, despite younger workers being more likely to have defined contribution plans than their elders (Age Comparisons Among Workers 2010). …

Financial Ideas, Political Constraints: Sovereign Wealth Funds and Domestic Governance

Rather than deconstruct sovereign wealth funds' (SWFs') significance for global capital markets, this paper asks the following question: why do SWFs exist at all? It consequently examines the politics behind SWFs' domestic origins, and the socioeconomic implications they pose for the constituents to whom they are ultimately accountable. It begins its analysis with the argument that SWFs are first and foremost domestic strategies of governance created to achieve specific short- and medium-term goals of the administrative state. The funds serve to immediately stabilize state actors' governance function by reconceptualizing problems of uncertainty in the quantitative and manageable terms of financial risk. This risk-based fiscal management strategy enables state actors to manage domestic expectations concerning various problems they may face: how to use extra-budgetary foreign exchange reserves, for example, or how to meet a future liability. For Ireland, the expectation that their highly depended-upon state pension system was unsustainable represented one such problem of uncertainty facing the Oireachtas in the late 1990s. Creating an SWF mandated to maximize financial returns through speculation thus immediately created forward-looking expectations of the Oireachtas' capacity to generate investment income and lessen the cost–savings gap. However, this paper also argues that the speculative financial ideology substantiating SWFs' institutional legitimacy problematically constrained Irish state agency between 2001 and 2010. This constraint was most evident following the Irish banking crisis of 2008.

ECONOMIC POLICY IN A GROWTH CONTEXT: A CLASSICAL SYNTHESIS OF KEYNES AND HARROD

ABSTRACTThis paper clarifies key differences between Harrodian and Keynesian theories and policies, and develops a classical alternative to both. The stability of the Harrodian warranted path is proved, and the Keynesian paradox of thrift is shown to be transient. Distinct Harrodian fiscal policies are derived, and Post‐Keynesian debates about Harrodian dynamics are addressed. Finally, it is argued that business and household savings are fundamentally different, and it is shown that if the business savings rate responds at all to the investment–savings gap, it becomes possible to have both profit‐driven accumulation as in Keynes and normal capacity growth as in Harrod.

Commentary: the Balance of Payments and the Savings Gap

Commentary: the Balance of Payments and the Savings Gap

Commentary: The balance of payments and the savings gap

Commentary: The balance of payments and the savings gap

The distribution dilemma

The world of business is riddled with change and complexity – none more so than the life and pensions industry. Banks, for instance, have long sat on the side-lines, but now see long-term savings as a key market to boost revenue growth – should authorities further “iron-out” the final creases in regulation. In addition to new competitors, there is a wide range of structural challenges confronting insurance industry competitors. Consumers continue to shun long-term savings, notably pensions – an UK study in 2002 estimated the savings gap at $50B (ABI, 2002) – with many consumers finding alternative assets such as property more attractive although the transaction costs (stamp duty) remains high. The market is attracting heightened regulatory scrutiny on a number of fronts. There are wide-ranging product persistency and top-line growth challenges and, not surprisingly, increasing pricing pressure across the product spectrum. However, our investigation into the UK insurance market has convinced us that the heart of the problem facing the industry is found in the structure of the business model in use across the life and pensions industry – using a costly face-to-face advisor to identify likely buyers, to sell and service that business once it is underwritten. There is a significant misalignment in value that has built up between product providers, retail customers and independent financial advisors (IFAs) who are responsible for the majority of life and pensions sales in the UK. This mismatch between value provided and costs borne makes the current business model an unsustainable proposition going forward. This distribution problem has long been recognised but, unfortunately, has yet to be addressed. To quote a senior executive of a major life office this is “due to industry sloth, rather than failure of policy”.

The UK Savings Gap

We set out a framework for measuring the adequacy of saving in the United Kingdom by assessing the absolute level of savings based on individual preferences of different ages. We examine this relationship between age and savings using data from the Expenditure and Food Survey 2004–5. We show that, while the level of national saving is about 8.4 percentage points of net national income lower than is required if one assumes that each cohort pays its own way, wealth holdings are considerably higher than are required on the same basis. Looking at household, rather than national saving, the current pattern of benefits on public sector pensions removes the need to save for old age. While perhaps £4000m of household wealth holding can be accounted for by bequest and other transfer motives, our results suggest excess wealth holding of around £1600m in 2004.

Closing the Savings Gap? The Role of the Saving Gateway

The 2001 election manifesto committed Labour to introducing two innovative policies designed to increase savings and assets among future generations, and the low-income families of today. The Child Trust Fund aims to provide all children with an endowment of assets when they reach the age of 18. Child Trust Fund accounts became available in April 2005 to all children born from 1 September 2002. The Saving Gateway offers a new savings account for lower-income families, designed to encourage savings. The first Saving Gateway pilot took place between 2002 and 2004; a second, larger pilot is currently underway. This article outlines the key findings from the evaluation of the first Saving Gateway pilot.1 Overall, the results are positive—the scheme has encouraged participants to save, and to save regularly. In addition, it seems to have resulted in positive psychological and attitudinal changes among a significant proportion of participants.

Who Saves in Ireland?: The Micro Evidence

This paper provides detailed empirical evidence on the saving behavior of Irish households using micro data from the 1994/95 and 1999/2000 Household Budget Surveys. I employ synthetic cohort techniques to characterize the life cycle profile of saving rates and to examine the response of household saving to house price appreciation. The analysis suggests that households at the peak of their working lives have relatively low savings though there is no evidence of a generational savings gap. Also, despite housing being a major component of Irish households, wealth, there is no strong relationship between savings and housing capital gains.

Who Saves in Ireland? T+L3251he Micro Evidence

This paper provides detailed empirical evidence on the saving behavior of Irish households using micro data from the 1994/95 and 1999/2000 Household Budget Surveys. I employ synthetic cohort techniques to characterize the life cycle profile of saving rates and to examine the response of household saving to house price appreciation. The analysis suggests that households at the peak of their working lives have relatively low savings though there is no evidence of a generational savings gap. Also, despite housing being a major component of Irish households, wealth, there is no strong relationship between savings and housing capital gains.