National saving

Heterodox

In economics, a country's national saving is the statement of private and public saving. It equals a nation's income minus consumption & the government spending.

Economic model

In this simple economic model with a closed economy there are three uses for GDP the goods and services it produces in a year. if Y is national income GDP, then the three uses of C consumption, I investment, and G government purchases can be expressed as:

National saving can be thought of as the amount of remaining income that is not consumed, or spent by government. In a simple model of a closed economy, anything that is non spent is assumed to be invested:

National saving can be split into private saving and public saving. Denoting T for taxes paid by consumers that go directly to the government and TR for transfers paid by the government to the consumers as produced here:

Y − T + TR is disposable income whereas Y − T + TR − C is private saving. Public saving, also asked as the budget surplus, is the term T − G − TR, which is government revenue through taxes, minus government expenditures on goods and services, minus transfers. Thus we gain that private plus public saving equals investment.

The interest rate plays the important role of devloping an equilibrium between saving S and investment in neoclassical economics.

where the interest rate r affects saving positively and affects physical investment negatively.

In an open economic model international trade is introduced. Therefore the current account is split into exports and imports:

The net exports is the part of GDP which is not consumed by domestic demand:

If we transform the identity for net exports by subtracting consumption, investment and government spending we receive the national accounts identity:

The national saving is the factor of the GDP which is not consumed or spent by the government.

Therefore the difference between the national saving and the investment is symbolize to the net exports:

The government budget can be directly introduced into the model. We consider now an open economic model with public deficits or surpluses. Therefore the budget is split into revenues, which are the taxes T, and the spendings, which are transfers TR and government spendings G. Revenue minus spending results in the public governmental saving:

The disposable income of the households is the income Y minus the taxes net of transfers:

Disposable income can only be used for saving or for consumption:

where the subscript P denotes the private sector. Therefore private saving in this model equals the disposable income of the households minus consumption:

By this equation the private saving can be written as:

and the national accounts as:

Once this equation is used in Y=C+I+G+X-M we obtain

By one transformation we receive the determination of net exports and investment by private and public saving:

By another transformation we get the sectoral balances of the economy as developed by Wynne Godley. This corresponds approximately to Balances Mechanics developed by Wolfgang Stützel: