Growth and Saving among Individuals and Households

The lifecycle theory of saving and consumption predicts that changes in an economy’s rate of economic growth will affect its aggregate saving rate by changing the lifetime resources of younger people relative to older people. However, studies that track the saving behavior of cohorts of household heads over time as they age have yielded estimates of age-saving profiles that are too flat for growth to have much effect on the aggregate saving rate. One problem with the cohort approach is that multigenerational households are common in many counties, and the age-saving profiles of households may be quite different from the age-saving profiles of individuals that make up households. In this paper, we propose a method for estimating individual age-saving profiles using household data. This method is applied to data from Taiwan and Thailand. We find that the individual method yields results that are more favorable to the lifecycle model. These results imply that changes in the rate of economic growth may in some circumstances have large effects on the aggregate saving rate. However, the size and sign of these effects depends on the rate of economic growth and the rate of population growth, and in many cases the effect of growth on saving is small.