Five important policy measures to increase

national saving in Saudi Arabia

1. Increase Government Saving

Increasing government saving is the most straightforward approach to increase national saving. A
decrease in government spending and transfers or an increase in taxes can be used to achieve this
increase. These actions could have various effects on individual saving and, consequently, on the
national saving.

2. Increase taxes and reduce government spending

Tax increases will result in a decrease in private saving that will be largely mitigated. If the rise in taxes
is placed on income rather than consumption, this offset may be made worse. So, a given decrease in
government spending is likely to have a greater effect on national savings than a corresponding rise in
taxes. The government is running a deficit if it spends more than it takes in from taxes. On the other
hand, it is running a surplus if it is spending less than it takes in in tax income.

3. Tax Policy

Instead of trying to balance inflation indirectly through incentives that have the effect of (very
imprecisely) indexing certain chosen rewards to inflation, a government that wants to boost savings
would be better served by using tax policy to prevent inflation.

4. Budget surplus

When taxes bring in more money than expenditures, the government may decide to pay down some of
its outstanding debt using the surplus. This rise in public savings also raises overall savings. A budget
surplus thereby raises the amount of loanable funds (funds available for private investment), lowers the
interest rate, and stimulates investment. More investment leads to increased capital accumulation, more
productive output, more innovation, and faster economic growth.

5. Reduce budget deficit

Long-term effects of rising federal budget deficits on the economy include a decline in national saving
(the sum of all family, company, and government savings), which in turn affects the amount of money
available for private investment in productive capital. In the long run, deficits "crowd out" private
domestic investment. A reduced stock of capital and poorer output are the results of lower investment.
A lower standard of living for households results from lower national saving and output than would
otherwise be the case.