Taxation and Household Saving in Open Economies: Evidence from the Nordic Countries

Household saving behavior in the Nordic countries is studied by trying to figure out the effects of tax factors on its level and fluctuations. By and large, the lower level of the household saving ratio in the Nordic countries relative to the rest of the OECD can be accounted for by higher income taxation, a lower unemployment rate as well as by demographics and the 'growth effect'. As regards fluctuations in the household saving ratio, quarterly data from Denmark, Finland, Norway, and Sweden over the period 1972-91 suggest that it is positively affected by real income growth and the inflation rate and negatively by real housing prices (or real housing wealth).