Journal of Monetary Economics 2016 DOI: 10.1016/j.jmoneco.2016.08.009 View full text
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Halvor Mehlum, Ragnar Torvik, Simone Valente

Abstract: A theory of macroeconomic development based on the novel concept of savings multiplier is developed. Capital accumulation changes relative prices, amplifying incentives to save as the economy grows. The savings multiplier hinges on two mechanisms. First, accumulation raises wages and leads to redistribution from the consuming old to the saving young. Second, higher wages raise the price of old-age care and, in anticipation of this, the young save more. Our theory captures important aspects of China’s developme…

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