An increase in long-term economic growth requires higher investment in the OECD economies if it is to be achieved, otherwise faster growth will generate unsustainable pressure on resources. Higher investment can only occur if there is higher saving which could perhaps be generated by an increase in public sector saving. This paper looks at the consequences for five major economies of the OECD of a continued reduction in government deficits, or increase in surpluses, using the OECD econometric model. The conclusion of the paper is that using conventional economic relationships, a fall in government expenditure should increase national savings and lead to higher private sector investment. Over the longer term, the higher investment will raise the actual and potential output level of the economy -- more than compensating for the lower short-term level of output associated with the cuts in government expenditure ...
