The determinants of household saving behaviour in Malta

Gatt, William (2014): The determinants of household saving behaviour in Malta.

Abstract

This study analyses the determinants of the aggregate household saving rate in Malta; an important macroeconomic variable which in standard short-term analysis is considered as a ‘residual’. The aggregate household saving rate, fluctuated significantly over the past thirteen years, rising from 6.4% in 2000 to 10.3% by 2002, falling significantly to 4.1% by 2006, doubling to 8.4% during 2007 and stabilising between 5% and 7% in the years 2008 to 2012. Such sharp swings warrant an investigation to uncover the underlying drivers, and this paper finds evidence that the estimate of the saving rate correlates with a set of macroeconomic variables The results of an estimated equation are in line with the theory and robust to different estimation techniques. One should keep in mind that there are no official statistics on disposable income and therefore this paper uses an in-house estimate of disposable income, which may be subject to measurement errors.

It results that developments in bank deposit rates played a major role in driving the saving rate over the period of interest. In addition it appears that households tended to be somewhat ‘Ricardian’ by increasing their saving following a deterioration in the government budget deficit, although only around a third of changes in public savings were offset with a corresponding change in household saving. The absence of complete Ricardian equivalence is in line with other studies on the Maltese economy. An element of precautionary saving, a feature at the heart of the literature surveyed, was also observed. Faced with uncertainty, households attempt to keep a buffer stock of wealth proportional to their income as a means of ‘saving for a rainy day’. In the context of a falling fertility rate over the past forty years and an ageing population, demographic factors do not seem to have had an influence on saving decisions over the period covered in this study, even though they are bound to have some impact in the coming years through a lower household saving rate, unless corrective actions are taken.

• Item Type: MPRA Paper
• Language: English
• Keywords: Saving rate, precautionary savings, real deposit rate, incomplete Ricardian offset
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General > E01 - Measurement and Data on National Income and Product Accounts and Wealth ; Environmental Accounts; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy

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