The impact of budget deficits on national saving in the USA

This paper analyses the effect of government budget deficits on national sa ving in the USA utilizing annual time series data from 1967 to 1996. A mode l that includes budget deficits, money supply, real exchange rate, real int erest rate, and the proportion of working age population to total populatio n to explain national saving is developed. After examining the time series properties of the data an error correction model is estimated. The overall results suggest that an increase in government budget deficits tend to redu ce national saving. The working age population coming out of the baby boom generation has positively contributed to an increase in national saving.