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Measuring and interpreting household saving rate

This article discusses the importance of measuring and interpreting the household saving rate as a means to understand a country's capacity to cope with cyclical downturns, save for rainy days, and finance itself in the long term. It explores various measurement and conceptual issues, including the treatment of pension funds, capital depreciation, indirect taxes, capital gains, and durable goods consumption.

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Measuring and interpreting household saving rate

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  1. Measuring and interpreting household saving rate Cédric Audenis Stéphane Gregoir Claudie Louvot

  2. Short term : Country’s capacity to cope with a cyclical downturn Saving for rainy days (health problems, unemployment,…) Long term : Country’s capacity to finance itself Saving for retirement Informational contents of the saving rate :unconsumed fraction of income derived from gross (or net) production and capital

  3. Objectives • Looking for a meaningful and internationally comparable measures of household saving rate • No information on the absolute level • Not necessarily the measure adapted to econometric modellings

  4. For a more comparable measure6 issues • Various institutions : • The relative size of individually identifiable consumption • The existence of pension funds • The relative share of indirect taxes • Measurement and conceptual issues • The measurement of FCC • Accounting for holding gains • Durable goods consumption

  5. A measure that can be constructed today (I) • Various institutions : more socialised economies have larger « standard » saving rate

  6. A common measure that can be constructed today (II) • Statistical treatment of the voluntary saving for retirement • Pension funds ~public pension schemes (SNA93) • Various definitions : Pension funds ~life insurance

  7. Possible improvements : capital depreciation • Need of net saving rate BUT • Statistical measure of capital depreciation • Difficult to measure : housing service of constant quality • Harmonization in progress

  8. Possible improvements : indirect taxes • Heterogeneity in the structure of taxes : ceteris paribus, a larger share of indirect taxes on consumption implied a lower saving rate • Indirect taxes deducted from disposable income,indirect taxes deducted from consumption • Saving reduce by indirect taxes levied on investment • Ambiguous impact on the saving rate

  9. Topics that merit closer examination : capital gains • How to deal with capital gains ? • « realised » and « unrealised » capital gains • Measurement problem : quoted/unquoted shares and their relative share in household portfolio • Only capital gains realised vis-à-vis another sector might be considered as household income and possibly saving. • Taxes levied on capital gains : indirect and very rough

  10. Topics that merit closer examination : durable goods • For some durable goods : consumption is close to investment decision • In terms of agent behaviour • Measurement issue : resource :income related to the production of durable-goods-related services, use : user cost of durable goods • Different public utilities may lead to different durable goods consumption

  11. Conclusion

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