| Abstract: | The inadequacy of aggregate saving is often cited as an explanation of the low levels of capital accumulation and productivity growth in the United States. Aggregate saving is low in large part because of the steep decline in the personal saving rate that has occurred since 1975. This paper uses a modified life-cycle model to analyze the determinants of this recent decline in the personal saving rate. The empirical results do not support the hypothesis that the decline in the saving rate was the result of a reduction in the real rate of return. The reduction in the rate of growth of income and the changing demographic profile of the labor force are the most important factors in accounting for the fall in the personal saving rate. |
