"Life Cycle" Hypothesis of Saving: Aggregate ... - Arabictrader.com

128 The Life-Cycle Hypothesis
demographic variables were never significant in accounting for the change
between the ’60s and the ’80s, or between the ’70s and the ’80s. This can be illustrated
by means of line 10. Only the coefficient of GS is consistent with earlier
results and has a respectable t-ratio. These disappointing results seem to reflect
multicollinearity since in both lines 10 and 12, R 2 is rather high. Dropping the
demographic variables in line 11, makes relatively little difference. Line 12,
where the variables are first differences between the ’70s and ’80s, is even more
surprising as the only coefficient significant at the one percent level is that of GS,
and that coefficient is too large even for LCH. However, dropping from line 12
the insignificant variables and allowing for a faster response to growth by adding
the current, in addition to the lagged, rate of growth, appears to eliminate or
reduces appreciably the unsatisfactory aspects of line 12: the growth effect (the
sum of the two growth coefficients) more than doubles to 1.6 and thus returns to
the prevailing range; the coeficient of government surplus declines, though
remaining somewhat high for LCH and a fortiori for the Barro hypothesis. The
coefficient of taxes agrees with LCH, and only the coefficient of the inflation correction
declines in value and reliability.
In table 4.4, we have utilized the equation of line 13 to examine how well the
model can account for the large decline in the saving rate between the ’70s and
’80s, both for the average of all countries and for each individual country. Each
column in the table gives the contribution to the change in saving of the variable
indicated in the top row. The last row gives, for each variable, the average of all
countries. Column 6 reports the change computed from the equation (the sum of
the entries in columns 2 to 5, and 7 gives the actual change. It is seen from column
7 (bottom row) that saving declined almost universally in this period, with an
average decline of nearly 5 percentage points. It is also apparent, from column
6, that the equation accounts quite accurately for this average fall.
Column 2 shows the contribution to the change in saving attributable to the
change in the rate of growth. It brings out the fact that the almost universal decline
in this variable is a major factor in the fall of saving, accounting for some 40
percent of the total. The other major component is the nearly as widespread
decline in surplus, accounting on the average for three percent of NNP, which is
responsible for over half of the decline. The remaining two variables, taxes and
inflation correction, also contributed to the fall but to a minor extent (about 10
percent). This reflects the fact that these variables had very little change on the
average over the period under review, though they contributed substantially to
the changes in saving of a number of countries. Indeed, from the individual rates
one can discern a considerable variety of experience, though negative signs predominate
in every column. Thus, the UK experienced a rather small decline in
saving, despite the appreciable deterioration in the fiscal stance, due mostly to