Impact of Household Savings on Household Income and GDP in Iran: Using A CGE Model

Exogenous shocks and economic fluctuations led to extensive changes in households’ savings. Changes in household savings can also influence macroeconomic indicators. Thus in this study, the impact of household savings on household Income and GDP are examined using a Computable General Equilibrium (CGE) model. In the literature, there are two static and dynamic general equilibrium models. We apply the Mixed Complementary Problems (MCP) method using the Iran’s time series data. Two different scenarios are considered in this study. In the first scenario, marginal propensity to household savings will be increased twenty percent while in the second scenario marginal propensity to household savings will be decreased by the same rate. Furthermore, we updated and developed a Social Accounting Matrix (SAM) for Iran. The following results are obtained. Using the static model, the results vividly indicate that the urban and rural household incomes have increased 0.31 and 0.5 percent, respectively, through the supply of labor and capital in the first scenario. Moreover, GDP has also increased. The results of the dynamic model in the first scenario show that the rural and urban household income increased by 6.42 percent. However, in the second scenario it declined at the same rate as the first scenario indicating the fact that there is a positive relationship between household income and their savings. GDP has increased on average by 6.41 percent based on the first scenario. In summing up, it is found that by the implementation of the second scenario, the opposite results are obtained.