Substitutability of Savings by Sectors: OECD Experiences

This paper investigates empirically the substitutability of savings among the household, corporate and government sectors in OECD countries. First, theoretical micro-foundations are constructed, wherein, each sector behaves under intertemporal optimization. Second, empirical investigations are conducted based on this theoretical formation. Optimal consumptions is then derived based on the theoretical relationship between household consumption and corporate and government savings. Empirical results indicate that changes in corporate savings marginally offset household savings in OECD countries. This empirical evidence somewhat supports the assertion that households partly pierce the corporate veil and that other factors, such as fluctuations in disposable income and precautionary motives, contribute to the relation between household and corporate savings. However, substitutability of savings between the households and the government is not clearly evident.