Savings Rates and the Business Cycle: A Comparison Between the Public Sector's and the Households' Savings Behaviour

Abstract: In 2008 the world entered into what may be the worst economic crisis since the 1930's. Hence, stabilization policy is, once again, a very pressing subject. According to theory, there are reasons for both the public sector and households to smooth out their consumption over the business cycle. An interesting question to study is if such consumption smoothening actually takes place or not. This thesis compares how the Swedish public sector and households adjusted their savings rates to changes in the business cycle during the period 1950 to 2006. We find that the public sector acted in a countercyclical way, while it was not possible to find a clear pattern for how households acted.