Government Borrowing Affects Private Savings
How Government Borrowing Affects Private Savings
Written by J. Mance Gordon
Updated at April 23rd, 2024
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How does Government Borrowing Affect Private Savings?
A change in government budgets may impact private saving. Imagine that people watch government budgets and adjust their savings accordingly. For example, whenever the government runs a budget deficit, people might reason: “Well, a higher budget deficit means that I’m just going to owe more taxes in the future to pay off all that government borrowing, so I’ll start saving now.” If the government runs budget surpluses, people might reason: “With these budget surpluses (or lower budget deficits), interest rates are falling, so that saving is less attractive. Moreover, with a budget surplus the country will be able to afford a tax cut sometime in the future. I won’t bother saving as much now.”
Related Topics
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- Autonomous Spending
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- Marginal Tax Rates
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