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What incentives guide consumers to save more or less? Does it matter if consumers save more...

What incentives guide consumers to save more or less? Does it matter if consumers save more or less?

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Answer #1

A consumer can decide to save more for future period for following resaons:

1. if there are expectaions of decreasing the tax rate. Under ricardian equivalance propostion, consmuers can save more in current period to pay for the increase in taxes in the future period.

2. They may also decide to save more if they cahnge their propensity to consume of income.

3. in general if they are going to amke a high expenditure in future such as purchasing a house or car, they may decide to lower thier consumeption and hence increase their savings.

Yes, it matters if consumers are saving more or saving less. Savings are translated into investment which in turn are a driver for growth. A low level of saving can not sustain growth for a long time.

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