The Rise in Corporate Saving and Cash Holding in Advanced Economies: Aggregate and Firm Level Trends

Growing Like Germany: Local Public Debt, Local Banks, Low Private Investment

“…We also place our results against the backdrop of a recent literature that documents a secular rise in corporate net savings since the 1980s. Chen et al (2017) and Dao and Maggi (2018) argue that this increase is a global phenomenon that affects all industrialized economies. However, these studies generally focus on large, listed firms.…”

The corporate sector and the current account

“…To the extent that a rise in corporate saving as a percent of GDP implies a more unequal income distribution (e.g. when it is assumed that corporate retained earnings accrue proportionally to equity wealth, as suggested by Piketty et al, 2017), one may ask whether changes in corporate saving and personal income inequality have similar macroeconomic effects in terms of current account balances (see also Dao and Maggi, 2018).…”

“…The lack of attention to corporate net lending as a potential driver of macroeconomic trends has been noted in recent literature (Gruber and Kamin, 2016;IMF, 2017;Dao and Maggi, 2018). Chen et al (2017) document the global rise in corporate saving using both national accounts and firm-level data.…”

“…In other words, shareholders may have decided, against the backdrop of higher income inequality, to keep a higher share of their rising incomes as savings within firms. Consistent with this explanation, Dao and Maggi (2018) and IMF (2018) hypothesize that higher corporate saving may reinforce the aggregate demand and current account effects stemming from rising personal income and wealth inequality.…”

“…Similarly, Gruber and Kamin (2016) discuss the possibility of a structural break in corporate saving behavior caused by the global financial crisis. Finally, we ask whether the current account effects of corporate saving may be associated with changes in income inequality, a possibility discussed by Kumhof et al (2012) and Dao and Maggi (2018). Rather than reflecting incomplete piercing of the corporate veil, a positive correlation between corporate saving and national saving may actually be due to differential saving propensities of higher-income and lower-income households.…”