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Are We Saving Enough? The Macroeconomics of the Savings Gap

Published online by Cambridge University Press:  26 March 2020

Olga Pomerantz  and
Martin Weale
Olga Pomerantz*
Affiliation:
National Institute of Economic and Social Research
Martin Weale*
Affiliation:
National Institute of Economic and Social Research
*
e-mail: o.pomerantz@niesr.ac.uk
m.weale@niesr.ac.uk
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Abstract

We assess the adequacy of saving in the United Kingdom from a macroeconomic perspective. We present conditions needed for wealth to grow in line with income and discuss the circumstances in which capital gains can represent a substitute for saving. We show that reference to balance sheets can be misleading because they fail to identify the cost of future consumption. A savings gap of between £16.5 bn and £66 bn is identified before taking account of the effects of demographic change. The outcome depends on whether one regards rising house prices as a consequence of fixed supplies of land or as the outcome of failing to invest enough in housing with the upper figure arising in the latter case. Policy measures to reduce the savings gap are discussed. These include appropriate use of fiscal policy and taxation of credit.

Keywords

Savings rateequilibrium growthfiscal deficit and national savingcapital gainsE21E60E62H6O40
Type
Articles
Information
National Institute Economic Review , Volume 191 , January 2005 , pp. 79 - 93
Copyright
Copyright © 2005 National Institute of Economic and Social Research

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Footnotes

We are grateful to Ray Barrell for his comments.

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