Working Paper No.7
Savings in Asian Developing Countries－
What Measures Could be Taken to Stimulate
Private Savings in Thailand?
by
Jun Saito
Economic Planning Agency, Government of Japan
September 1991
Department of Research Cooperation
Economic Research Institute
Economic Planning Agency
Tokyo, Japan
Savings in Asian Developing Countries－
What Measures Could be Taken to Stimulate
Private Savings in Thailand?
JUN SAITO *
September 1991
* The author is currently the Deputy-Director of the Price Policy Division, Price Bureau,
Economic Planning Agency (EPA). The paper was initiated while the author was an economist
with the Asian Department, International Monetary Fund (IMF). Opinions expressed in the
paper are those of the author and not those of the EPA or the IMF.
Contents
Page
I. Introduction
1
II. Cross-country comparison of savings rates among Asian developing countries
1
1. The "usual" measures of savings
2. The "appropriate" measures of savings
3. Comparison of savings rates
III. Determinants of private savings in developing countries
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3
5
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1. Demographic factor
a. Increase in fertility rate and population growth
b. Decline of mortality rate and longer life expectancy
c. Change in retirement age and education age
2. Per capita income growth
3. Liquidity constraints
4. Interest rate control
5. Development of financial instruments and institutions
6. Uncertainty and insurance, annuity and social security programmes
a. Public pension schemes
b. Provident funds
7. Tax system
8. Determinants of corporate savings
IV. Measures to stimulate private savings in Thailand: An outline
1. Widening and deepening of the financial system
2. Interest rate flexibility and financial liberalization
3. Social security system
4. Tax system
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Tables
1. Savings Rates (1)
2. Savings Rates (2)
3. Savings Rates (3)
4. Characteristics Related to Savings
5. Social Security Programs for Old-Age
6. Tax Revenues and Tax Rates
7. Exemption and Deduction Provisions for Personal Income Tax
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References
R-1
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Savings in Asian Developing Countries－
What Measures Could be Taken to Stimulate
Private Savings in Thailand?
I. Introduction
The savings rate in Asian countries has been known to be high relative to the rest of the
world. However, while in some countries it has been sufficient to finance domestic fixed
investment, it has to be complemented by foreign savings in majority of countries, including
Thailand. The contrast is more significant when compared among the rapidly growing
countries of the region, namely the four NIEs, Malaysia and Thailand. Among these, Thailand
is the only country which depends considerably on foreign savings. While this in itself does not
pose a problem, especially when bulk of them takes the form of direct investment, it may
suggest an insufficient mobilization of domestic savings. This paper will examine the possible
reasons behind the difference in savings rate in Asian countries and seek the possibility of
mobilizing domestic savings in Thailand.
The structure of the paper is as follows. Section II reviews the definition in the past studies
and considers the appropriate measure of savings rates. This is followed by Section III in which
the theory on the determinants of savings rate in developing countries are surveyed and a
discussion is made on the possible factors behind the recent developments in and the difference
across the developing countries of Asia. Section IV attempts to identify the measures that could
be implemented in order to stimulate private savings in Thailand.
In view of the availability of information, countries that are compared with Thailand are:
Indonesia, Malaysia, Philippines, Singapore (all members of ASEAN), Korea (one of the NIEs),
India, and Sri Lanka (both in South Asia).
II. Cross-country comparison of savings rates among
Asian developing countries
1. The "usual" measures of savings
Data availability is one of the major problems faced when undertaking any analysis of
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developing countries. This is especially the case when the data required is the national
accounts data which depends crucially on the availability of wide range of primary data. 1/
For a formal analysis of savings behavior, an income and outlay table is necessary for each of
the institutional sectors, at least for household, incorporated enterprises and general
government sectors. However, only a few countries have sufficient set of tables (Thailand,
Philippines, Korea and India), some only have the income and outlay table for the consolidated
nation (Sri Lanka), and the rest has no available tables in this regard (Indonesia, Malaysia
and Singapore).
Partly for this reason, the "usual" measure of savings in the developing countries has been
the gross national savings (GNS) or the gross domestic savings (GDS). They are certainly
available if the national account data are compiled to a reasonable degree. Even if there are
limited amount of information, there are established formulas that enables the analyst to
derive such series.
When there is no information other than the production and expenditure accounts, the
usual practice is to derive an aggregate savings series by calculating one of the following:
GNS' = GNP – C
(1)
GDS' = GDP – C
(2)
GNS" = FI + INV + CA
(3)
where GNP and GDP denotes gross national and gross domestic products, respectively, C total
final consumption expenditure, FI total gross fixed capital formation, INV changes in stocks,
and CA current account balance of balance of payments.
When there is a need for a breakdown of aggregate savings when such data is not readily
available, the usual practice is to derive a public savings series and subtract it from the
aggregate to obtain a private savings series. Public savings series, however, is also a difficult
series to derive. Often data is available only for the central government, social security fund,
and some of the public enterprises. Moreover, to create a series which conform to the national
accounts concept requires considerable effort. The coverage and accuracy of the series is
therefore subject to considerable deviation across countries. Accordingly, the private savings
series would often include not only the household and private enterprise sectors but also local
1/ The concept of savings in the national accounts is not free of criticisms. Debate has been
on such areas as the treatment of consumer durables, investment in human capital, capital
gains and losses, inflation adjustment, etc. For a discussion on these issues see Gersovitz
(1988).
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government, part or all of the public enterprises, and social security fund as well.
After the necessary series are derived, the cross-country comparison is made by taking
ratios to an aggregate series; often in the form of GDS/GDP or GNS/GNP, but other forms are
also found. Usually, the reason for the particular choice is not made clear.
Table 1 shows the savings rate commonly used for the countries under comparison. The
series is GDS as a ratio to GDP; and GDS follows the formula (2).
Table 2 shows an alternative series. The series is GNS as a ratio to GNP. The table also
gives a breakdown of the aggregate savings; The government savings only includes that of the
central government, which has been taken from the current account balance of the
consolidated central government in the Government Financial Statistics. The residual series
obtained by subtracting the government series from GNS, therefore, has a wider coverage than
the usual notion of private savings series.
2. The "appropriate" measures of savings
In Subsection 1, we did not discuss the appropriateness of the "usual" measures of savings.
However, the fact that the denominator is in both cases a production series and not an income
series suggests that the two rates may not be appropriate measures of savings. This subsection
attempts to derive an appropriate savings rate for each of the possible alternative objectives
of an analyses, and examine the nature of the "usual" measures.
The two possible alternative objectives of an analysis of savings are: (a) analysis of the
consumption/savings decision of the economy, and (b) analysis of the source of funds of
investment expenditures. In the national accounts framework, the former corresponds to the
income and outlay account, while the latter corresponds to the capital finance account.
The income and outlay account can be summarized as the following identity:
YD + TAX + YF + TFC = C + NNS
(4)
where YD denotes net domestic factor income (sum of compensation of employees and
operating surplus), TAX indirect tax minus subsidies, YF net factor income from abroad, TFC
net current transfer from abroad, and NNS net national savings. Since the left hand side is
national disposable income (NDI), (4) can be rewritten to obtain:
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GNP － DEP + TFC = C + NNS
(5)
where DEP denotes consumption of fixed capital. Suppose we subtract C from GNP, from (5)
we obtain:
GNP － C = NNS + DEP － TFC = GNS － TFC
It implies that (1) is only an approximation, equality holding only when TFC is zero. On the
other hand, when C is subtracted from GDP:
GDP － C = GNP － YF － C = GNS － YF － TFC
When the term on the right hand side is defined GDS, (2) will hold with strict equality.
The capital finance account can be summarized as the following identity:
NNS + DEP + TFK = FI + INV + CA
(6)
where TFK denotes net capital transfer from abroad. It shows that equality of (3) will hold
only when TFK is zero.
It is straightforward to see that, when we are interested in consumption/savings decision,
the appropriate rate of savings would be, from (5):
NNS / (GNP － DEP + TFC) * 100
(7)
Note that, in this case, both the numerator and the denominator are in net terms, i.e. excluding
consumption of fixed capital. It comes from the assumption that the latter can be spent only
toward investment and not toward consumption. Note also that both the numerator and the
denominator are in national terms and not in domestic terms. This comes from the fact that
net factor income and net current transfers from abroad do form part of the income that is split
between consumption and savings.
In order to see how investment is financed, (6) would have to be rearranged as follows:
FI + INV = (NNS + DEP － YF － TFC) － (CA － YF － TFC － TFK)
(8)
The first bracket on the right hand side, which is equal to GDS, corresponds to domestic funds,
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and the second to foreign funds. In this case, savings rate that is appropriate to represent the
proportion of the investment financed by domestic funds will be:
GDS / (FI + INV) * 100
(9)
Although the meaning of the rate will be obscured, we can take an alternative rate: the ratio
of available domestic fund for investment to total domestic fund, i.e. total of compensation of
employees, operating surplus, and consumption of fixed income. Since the latter is equivalent
to (GDP － TAX), the rate would be:
GDS / (GDP － TAX) * 100.
(10)
If GNS/GNP is compared with (7), it can be seen that the former can be considered to be
an approximation of the latter only to the extent that TFC is negligible and that subtracting
DEP from both the numerator and the denominator does not effect the value of the ratio.
Similarly, if GDS/GDP is compared with (10), the former can be an approximation of the latter
only to the extent that TAX is negligible. While data availability would often prevent us from
obtaining series such as (7) or (10), qualifications in using (1) or (3) should be borne in mind.
Since our interest is in the savings behavior, savings rate based on (7) is presented in Table
3 for countries where data is available. Along with the aggregate savings rate, sectoral
breakdown is also provided whenever possible. The household savings rate is presented in
ratios to national disposable income (NDI) as well as household disposable income.
3. Comparison of savings rates
Tables 2 and 3 provides some information on the difference of savings rates among the
Asian developing countries. 1/
First, according to Table 2, Thailand places far behind Malaysia, Singapore, and Korea in
terms of the total savings rate. The three countries, which are also the most rapidly growing
countries of the region, has generally shown higher savings rates in both central government
and "others"; the only exception would be Malaysia where central government savings has
1/ It should be noted that caution is still required in interpreting these data since they are
subject to considerable measurement error. A discussion on how they might be biased can be
found in Gersovitz (1988). Also, they may reflect the difference of concepts, measurement and
estimation by countries due to the time lags in the countries in conforming to the new
guidelines on SNA set by the United Nations in 1963.
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declined considerably in the recent years. Similar observation can be made from Table 3 for
Korea.
Second, Table 2 shows that Thailand has roughly the same total savings rate as Indonesia
and India. However, if we examine the composition, the difference becomes clear. In the case
of Indonesia, Table 2 shows that it has higher central government savings rate but lower
savings rate in "others". In the case of India, the composition seems to be similar to Thailand
as far as Table 2 goes. However, Table 3 shows that India has lower general government
savings (implying lower savings in the local government) but higher household savings rate.
India also has lower corporate savings rates in corporate sector which is hidden in Table 2
because of India's larger proportion of consumption of fixed capital (consumption of fixed
capital in India is about 1/2 of GNS compared to 1/3 for Thailand).
Third, Thailand has higher total savings rate than the Philippines and Sri Lanka,
according to Table 2. In the case of the Philippines, it became clear after 1985 when savings in
"others" started to deteriorate significantly. Table 3 reveals that main contribution came from
the corporate sector. It also shows a surprisingly low household savings rate. Government
savings, on the other hand, has higher savings rate than Thailand which can be confirmed in
both Tables 2 and 3. In the case of Sri Lanka, lower total savings rate is attributable to lower
savings in "others" as is shown in Table 2.
Finally, when we see the tables as time series data, as compared to cross country data,
they show that total savings rate in Thailand has risen rapidly since 1985. The main
contribution has come from the general government followed by the corporate sector. In
comparison, contribution from household sector has been small until recently.
In the following, these findings would be borne in mind. In particular, the aim of the
following section will be to discuss the main factors that may explain the low private savings
rate in Thailand compared to Malaysia, Singapore, and Korea.
III. Determinants of private savings in developing countries
Total savings consists of public savings and private savings. The former can be further
disaggregated to general government savings, which is the sum of savings by central and local
governments and social security fund, and public enterprise savings. The latter can be
disaggregated to household savings, which is usually grouped together with savings by
unincorporated enterprises and non-profit institutions serving households, and private
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corporations savings. In this section, determinants of private savings will be discussed. The
interaction between private savings and the government savings, however, will be discussed
only when relevant. 1/
Savings and dissavings occur when an individual desires to undertake a certain pattern
of consumption stream which does not match the income stream. According to the life-cycle
hypothesis (LCH), forward looking individual in a world of perfect certainty will base his
savings decision on the discounted value of expected future income and attempt to smooth his
consumption stream over time. If a hump-shaped life-cycle time profile of income is assumed,
this will result in negative savings in the early stage of his working life, followed by positive
savings in the later stage, and again negative savings after retirement. It assumes that, not
only is the individual able to invest his savings in the later working period, but also is able to
borrow against his future income during the early working period. In the basic models, these
requirements are satisfied by assuming perfect capital markets.
Total savings is the aggregate of such life-cycle savings of each individual. If we can
assume that individuals are identical, in terms of utility function and time preference, and
face the same expected income stream and interest rate, and that there are same number of
them at each stage of the life-cycle, positive individual savings will be matched by negative
individual savings in every point of time so that there will be a constant zero aggregate savings
over time.
The above view of savings behavior suggests that positive and varying savings rate has to
be attributed to, among other things, the following factors; demographic factors that change
the proportion of savers to dissavers in the population; growth of per capita income that
changes the level of savings in different age groups; liquidity constraints that limit borrowings
of individuals; interest rate controls that restricts the rate of return on financial investment;
undeveloped financial system that limits opportunities of financial investment; uncertainties
that requires individuals to take risks into consideration; and tax system that introduces
distortions to labor supply and savings decisions. We will discuss these factors in turn. 2/
1/ It is assumed that private savings can be considered relatively independent of government
savings. This would imply a denial of the Ricardian Equivalence preposition. For an argument
on this point in the context of developing countries see Haque (1988).
2/ For a survey of issues related to savings in developing countries, see Aghevli, et al. (1990).
Lahiri (1989) provides the most recent and extensive empirical study on the savings behavior
of the Asian countries, and is the basic reference in this area. It, however, does not examine
the implication of the institutional factors that affect savings, those which we will be focusing
on in this paper.
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1. Demographic factor
Among demographic factors, population growth has attracted a considerable attention. Its
effect, however, has much to do with the cause of the growth rather than the growth itself.
Population growth is a result of an interaction between fertility rate and mortality rate; it
increases when fertility rate increases and/or when mortality rate declines. The effect on
savings depend on which of the two is the main cause and how it affects the composition of the
population.
a. Increase in fertility rate and population growth
When there is an increase in population growth as a result of an increase in fertility rate,
the implication is that there will be a larger proportion of younger generation who are positive
savers compared to older generation who are negative savers. It would then have an effect of
raising the aggregate savings rate (rate of growth effect). However, in reality, increase in
fertility rate leads to an initial increase in the ratio of dependent children who are dissavers.
To the extent that the household adds on additional consumption on the original consumption
stream, it would have the effect of reducing the individual savings rate (dependency ratio
effect). The net effect therefore will depend on the relative magnitude of the two effects.
Fertility rate has been high in Indonesia, Malaysia, the Philippines and India, and low in
Singapore and Korea. Thailand falls in-between, with Sri Lanka in the same group. This
grouping also holds for the population growth with the exceptions of Indonesia and India which
have moderate growth rate, probably due to their significantly high infant mortality rate. The
percentage of population aged 15 －64 shows an inverse relationship with the population
growth with again exceptions of Indonesia and India, this time probably due to their low life
expectancy. (Table 4) The casual observation suggests that; lower population growth is
generally the result of lower fertility rate; lower population growth has led to higher
percentage of working age population and therefore lower dependency ratio; and that part of
the high savings rate in Singapore and Korea may be explained by their low population growth.
Empirical studies has been done on both household level, using household surveys, and
aggregate level. 1/ The result of the former confirms that increase in the number of children
reduces the savings rate, not only in the period of child-bearing but also in the lifetimes. 2/
1 / For a survey see Hammer (1986), Mason (1988), and Gersovitz (1988).
2 / Mason (1988) cites a result of an earlier study (Kleinbaum and Mason (1987)) which
shows that, in Thailand, an additional child depresses the savings ratio by between 1－2
percentage points, depending on the socio-economic status of the household and the
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It seems to reject the views that consumption of parents would be curtailed to fully offset the
effect of children or that compensating savings take place before birth or/and after childbearing. It also suggests that while children in developing countries tend to start working at
relatively young age, it would not fully offset their effect on consumption.
The result of the empirical studies at the aggregate level tends to confirm that, although
dependency ratio effect may be strong, it is more than offset by the rate of growth effect so that
population growth would make a positive influence on savings rate. 1/
b. Decline of mortality rate and longer life expectancy
When there is a decline in mortality rate or, in other words, extension of life expectancy,
and it is accompanied by an increase in the ratio of old aged dependents (it may also be
accompanied by an increase in population growth), it will have an effect of reducing the
aggregate savings rate. This is because there will be a larger proportion of old aged dependents
in the population who will be dissaving. This effect will be offset if the individuals had
increased their savings earlier in anticipation of the longer life expectancy or if other
individuals increase their savings in preparation of the longer life expectancy.
Among the countries compared, Malaysia, Singapore, Korea and Sri Lanka have the
longest life expectancy, followed by Thailand and the Philippines, and Indonesia and India
having the shortest expectancy (Table 4). Some of the countries with the longest life expectancy,
i.e. Malaysia and Sri Lanka, do have high dependency ratio. However, in the case of Singapore
and Korea, they have low dependency ratio, probably due to the overwhelming effect of the low
fertility rate. On the other hand, Indonesia and India shows that short life expectancy do not
necessarily imply low dependency rate.
Casual observation suggests that effect on savings rate of life expectancy may be weak in
these countries. However, there seems to be no empirical work which directly dealt with this
issue.
c. Change in retirement age and education age
educational attainment of its head.
1/ Some studies at the aggregate level suggests that changes in consumption due to
changes in young dependents is offset by compensating changes in the later period for the
countries Japan, Korea, and Indonesia. On the other hand, Thailand has been noted as the
exception. See Mason (1988).
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Change in retirement age implies a shorter working period and a longer retirement period
within a given lifetime. If income opportunities do not change, this would mean an individual
who foresees the change will save more during the shorter working period in order to support
the longer retirement period. If the change is unanticipated, however, and the individual fails
to save enough, he would have to contain the level of dissavings during the longer retirement
period.
Change in education age will have similar effects. Longer compulsory education shortens
the working period and will imply that an individual have to finance the given retirement
period by less earnings. The savings of this individual will probably higher. However, at the
same time, his parents will have to keep him as a dependent for a longer period. Implication
for them will probably be to reduce the savings rate, although there could be various other
possibilities corresponding to their ability to foresee such change.
Whatever the theoretical possibility is, it is possible that in reality formal retirement age
may not have much effect on the aggregate savings since large part of production relies on
household production, e.g. agriculture, which are not binded by such arrangements. The
empirical studies in these areas are also scarce.
2. Per capita income growth
Increase in income will increase the lifetime income of the household that would be spread
over the lifetime consumption. Because part of the income increase will have to be saved in
order to finance the increase in consumption after retirement, the savings rate during the
working period will increase. If the increase in income affects all household equally, it will also
result in an increase in the aggregate savings rate. However, if the income growth is
anticipated, households may increase their dissavings in their earlier stage as long as they are
able to borrow.
Positive correlation between savings rate and growth rate has been widely recognized. 1/
Among our countries, Thailand, Singapore, and Korea, which have displayed high per capita
income growths, show higher savings rate compared to other countries with low growth
performance (Table 4). Also, in Thailand, Malaysia, and Korea, the rise in savings rate in the
recent years coincides with the period of accelerated growth. On the other hand, the savings
rate in the Philippines dropped as income growth rate declined. The sensitivity of savings rate
1/ It may be worth noting that some studies discuss correlation between savings rate and
the total growth rate, not per capita income growth rate. Clearly, their findings would include
the effect of the population growth.
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to income growth rate in these countries has been confirmed in number of studies. 1/
The reason behind the positive correlation, however, is still subject to some debate. The
causation may well be running from savings to investment and growth. More recent research
argues that the prediction of the LCH that age consumption profile should be relatively higher
among the young cohorts in the faster growing economy is not supported by the data. 2/
The effect on savings would be different if the per capita income growth is of a temporary
nature. In this case, the increase in lifetime income would be small so that resulting increase
in consumption would also be small. The temporary increase in income will result in increase
of savings by a higher proportion than the case of a permanent increase. Also in this case, even
if the temporary increase is anticipated, the effect on the behavior in the earlier stages would
be small. Some studies have attempted to distinguish the temporary increase in income and
its effect. 3/
3. Liquidity constraints
In simple models, individuals are assumed to face a perfect capital market, i.e. they can
borrow or lend at equal rates for unlimited amount. However, in reality, this would not be the
case. Individuals would face borrowing rate that are higher than the lending rates or would be
limited as to the amount he would be able to borrow, in most cases requiring collateral.
Liquidity constraint of this kind would have a significant effect on the savings behavior.
Because he would not be able to borrow during his early working period when he would have
liked to consume more than the current income, he would be obliged to maintain a consumption
profile that closely follows the income profile during this period. This will reduce the dissavings
(increase the savings) of young households, but will reduce the savings of middle-aged
households and reduce the dissavings of the retired households. 4/
In the aggregate, if there is equal number of households at each stage, similarly to the
1/ For a cross country comparison see Lahiri (1989) in which he concludes that "on average
a 1 percentage point increase in the rate of growth of per capita income leads to an equivalent
increase in the private savings rate in the long run" (p. 248). For country specific studies, see
Paxson (1988) for Thailand, Nam (1989) for the Philippines and Korea, and Kharas (1989) for
Malaysia. Liang (1982) provides a study for Taiwan province of China which is also a rapidly
growing economy.
2/ See Deaton (1989) which shows data from five countries including Thailand.
3/ See study by Paxson (1989) on Thailand.
4/ Hubbard and Judd (1986) discusses the implications of incorporating liquidity constraints
into LCH models.
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case without liquidity constraints, there will be zero savings. If, on the other hand, there is
more young households, as is the case in the developing countries, there will be a positive and
higher savings in the liquidity constraint case compared to the non-constraint case.
The implication of the liquidity constraint will be more significant when there is
unavoidable lumpy expenditure which prevents one from following an expenditure pattern
that is closely tied to income stream. Examples of such expenditure will be purchase of house
and other consumer durables, education fees, etc. In order to finance such expenditures, most,
if not all, of the fund will have to be saved prior to the expenditure. In this case positive savings
have to be made during earlier stage of the household life cycle, further strengthening the
tendency mentioned above.
In the developing countries liquidity constraint would be more severe than in the
developed countries. Not only would they be unable to borrow against human capital, they
would have no access to mortgage loan market or consumer credit for purchase of household
consumer durables. Even when they have some access, they would be subject to credit
rationing because of the ceiling imposed on interest rates. 1/
The empirical studies on liquidity constraints itself are confined to developed countries,
especially U.S. There, considerable proportion of the population has been found to be liquidity
constrained. 2/ It has been suggested to be the main reason why LCH has been rejected in
some empirical tests. 3/
For developing countries, importance of liquidity constraint has
come to be recognized in relation to studies of interest rate elasticity of savings.
4. Interest rate control
While liquidity constraint affected savings through its implication on the borrowing
requirements of household, interest rate control has its main effect through its implication on
the lending activity of households. 4/ Interest rate controls are imposed when low interest
rate policy is pursued, especially in connection to the financing of government budget deficits.
1/ Implication of liquidity constraint on savings in the context of developing countries is
discussed in Virmani (1986) and Gersovitz (1988). Deaton (1989) constructs a model of savings
behavior in the developing countries assuming liquidity constraint as well as uncertainty of
income. The model shows the importance of the role of savings as a buffer between
consumption and an unpredictable and uncertain income.
2/ See for instance Hayashi (1987).
3/ See for instance Zeldes (1989).
4/ There is also an effect through the control of the borrowing rate which imposes a credit
rationing as seen in the previous section.
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To the extent that this would make current consumption attractive compared to savings, it
would have a substitution effect which reduces savings. However, to the extent that it implies
an increase in the amount of required savings in order to achieve a certain asset level, it would
have an income effect which increases savings. Therefore the net effect of interest rate control
is ambiguous on theoretical grounds.
Interest rate controls also have an effect of discouraging acquiring financial assets that
are under control. Funds would either flow into the uncontrolled financial institutions or to
real assets. Since both of these channels would tend to be limited in developing countries, such
an effect should have less significance than in developed countries.
There has been extensive empirical studies on the interest rate elasticity of savings. The
studies for the developed countries suggests that the elasticity would be small. 1/ Empirical
studies on developing countries is more inconclusive. 2/ Recent estimate suggests that it may
be positive but very small. 3/ It may explain, for instance, the impressive rise in savings rate
after financial reforms in Korea.
When liquidity constraint is binding households, intertemporal substitution of
consumption will be limited and so the response of household to changes in interest rate will
be muted. Since liquidity constraints are common in the developing countries, it may be the
reason behind the small value of elasticity. Recent attempt to estimate a model which explicitly
allows for liquidity constraints suggest that liquidity constraints are important; they are more
so in low-income countries; and where they are substantial, elasticities are small. 4/
5. Development of financial instruments and institutions
Savings in the form of financial assets will be conditioned by the degree of accessibility of
financial institutions and the availability of financial assets. It is often the case in developing
countries that there is only a limited set of financial institutions and even their network is
confined to urban areas. Also, the assets offered are limited and do not necessarily meet the
preference of the potential purchasers, not only in the rural areas but also in the urban areas.
Limited presence of financial institutions in rural areas may not be of great importance if
1/ For a survey see Smith (1989).
2/ For a survey of empirical studies up till early 1970s, see Mikesell and Zinser (1973) and
Snyder (1974). Recent studies include Giovannini (1985), Gupta (1987), and Rossi (1988).
3/ See Giovannini (1985). For Korea and the Philippines, see Nam (1989).
4/ See Rossi (1988).
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there is not much savings capacity in the region. Empirical studies in this area are scarce.
However, limited information on Taiwan, Japan, Korea, Malaysia, and India suggests that
there does exist considerable savings capacity in the rural regions of these countries. 1/ If
this is the case, expanding the financial system to the rural regions would be able to play the
role of efficiently channeling these resources to productive use as well as mobilizing their
saving capacity. 2/
Since the existing financial system has limited capacity in mobilizing savings,
governments has set up a number of institutions and/or provided legal framework for special
institutions to be created and fill the gap. The most prominent of them in Asian countries may
be the government managed Provident Funds. In Malaysia, for instance, household funds
channeled through the Provident Funds far exceeds that of bank deposits. 3/
6. Uncertainty and insurance, annuity and social security programmes
In the basic LCH models, perfect foresight were assumed for the individuals. However, in
reality, uncertainty exists with regards to income, expenditure needs, rate of return, life
expectancy, etc. Especially, in developing countries where the dominant industry is agriculture,
income is subject to great uncertainty. Also, when the population is vulnerable to famine and
epidemics, health expenditures are difficult to predict. On the other hand, improvement in
medicine may extend life expectancy. 4/
Under these uncertainties, households are obliged to hold precautionary savings to be able
to absorb the unexpected decline in income or extended life. 5/
Insurance and annuity
contracts are arrangements that transfers the risk from individuals to the provider of these
services. The provider could be a private company or the government, in which case it would
1/ The results are summarized in Adams (1978). It should be noted that the savings capacity
suggested in these studies are capacity that is already realized; it does not in its self suggest
of the possibility of further increasing savings. To the extent, however, that the savings have
taken the form of real assets, they suggest a potential that may be exploited by financial
institutions.
2/This aspect is emphasized in the arguments of the financial "structuralist". An attempt to
test this hypothesis, albeit in a limited sense, has been carried out in Gupta (1987).
3/ See Kharas (1989).
4/ Uncertainty in the context of developing countries has been discussed in Gersovitz (1988)
and Deaton (1989).
5/ The importance of precautionary savings is discussed in Abel (1985).
-15-
be called a social security system. They will have an impact on total savings rate not only
through their effect on household savings but also through their effect on other components of
national savings.
For instance, by entering a contract with an insurance company, there will be an
immediate effect of a decline in non-contractual household savings as the precautionary
savings will no longer be needed. 1/ It will be substituted by an insurance premium payment,
which will constitute a source from which insurance companies make their profit (corporate
savings, general government savings when the provider is the government). To the extent that
the companies operate efficiently and reduce the risk premium factor by pooling risk, they may
generate considerable savings.
On the other hand, precautionary savings are usually held for multiple reasons, in a way
pooling the risk associated with different sources within the household. In this case liquidity
of the savings becomes an important factor. To the extent that the liquidity becomes limited by
entering an insurance contract, the insurance will not be fully substituting the precautionary
savings, and therefore the reduction of the precautionary savings may be limited. On the other
hand, if the contract is going to allow easy withdrawal or an additional access to credit,
substitutability will be recovered.
In reality, private insurance market is incomplete and provides only a partial set of
insurances. Especially, annuities are rarely provided by the private sector. 2/ In developing
countries, extended family structure, which consists of several generations, has been providing
implicit insurance and annuity arrangements. 3/ However, governments also complemented
the situation by providing social security programmes. 4/ They would include insurances
that cover health, work injury, unemployment, etc.. They would also include annuities as
public pension schemes. Because of the relative importance, and the fact that it has been the
focus of numerous studies, the main discussion in the following will be centered on the effect
on savings of the public pension scheme.
1/ Assuming households are risk averse. See Abel (1985).
2/ The reason for the imperfect market can be attributed to asymmetric information and adverse
selection.
3/ Kotlikoff and Spivak (1981) discuss the function of families as a substitute for a complete
and fair annuity market.
4/ Eckstein, Eichenbaum, and Peled (1985) present a discussion that, in face of the lack of
private annuities market due to asymmetric information, mandatory social security
programmes have a Pareto improving role.
-16-
a. Public pension schemes
Public pension schemes are annuity contracts that are operated by the government and
are made compulsory to all or part of the population. Individuals make contributions during
working period, and receive annuities after retirement.
The primary effect of the public pension system on household savings is to reduce the part
of savings which correspond to savings for post-retirement consumption, and savings in
precaution of unexpected length of time after retirement (substitution effect). The effect on the
total savings depends on the way the system is financed.
When it is financed on a fully funding principle, the above component will have a
counterpart in the pension fund. To the extent that the fund is efficiently managed (i.e., the
fund will accrue returns equivalent to that in the private market), the fund will provide
annuities with less savings since the diversifiable risk will be eliminated by risk-pooling.
Therefore, although there will be a positive savings in the pension fund (included in the general
government), it will be less than the fall in the household savings rate so that the total savings
will decline. 1/
When the system is operated on a pay-as-you-go principle, there will be a larger fall in the
total savings to the extent that there is no corresponding accumulation in a fund. This may,
however, will be mitigated to some extent if households expect to see an increase in
contribution in the future and raise savings for that end. 2/
There are also secondary effects. It may be the case that households will decide to take an
early retirement in face of the pension scheme. This would result in the shortening of the
working age and an increase in the household savings rate (retirement effect). 3/ Another
possibility is that households, who would otherwise remain unaware, become to realize the
importance of saving for the retirement and raise their savings rate (educational effect). 4/
1/ See Abel (1985), Hubbard (1987), and Kotlikoff, Shoven, and Spivak (1987).
2/ In an extreme case where both systems would be equivalent, see Barro (1974). Implications
under lifetime uncertainty is discussed in Sheshinski and Weiss (1981). See also Shome and Squire
(1983) for a general discussion.
3/ This point has been emphasized by Feldstein. See Feldstein (1977) and, in a general equilibrium
context, Hu (1979).
4/ If, on the other hand, households are unfamiliar with the function of the system and regard
contributions as a kind of a tax, households may try to maintain the level of savings. This would have
the effect of limiting the degree of substitution effect. As the system establishes credibility, this kind of
effect would reduce significance.
-17-
Furthermore, if the assets in the form of pension fund is not a perfect substitute for household
savings, it will limit the decline in household savings. 1/
In the context of developing countries, the effect of the system when it is imposed on
households that would not be able to save even if they are fully aware of the importance of
saving for the retirement is crucial. This will be the case when households are barely above
the subsistence level. But also this will be the case when households are subject to liquidity
constraints discussed earlier. In this case, while the part of the savings will be released from
preparing for retirement by the pension system and will contribute in increasing lifetime
consumption, consumption during young will be restrained because of the liquidity constraint
that is further exacerbated by the compulsory contribution. The substitution effect of the
pension system will be, therefore, somewhat muted in the face of liquidity constraints
compared to the case without such constraints. 2/
The net effect of public pension system on household savings as well as on the total savings
rate cannot be determined on theoretical grounds. It has to be examined empirically. The
studies so far, however, has focused on the effect on household savings.
The empirical studies on developed countries, bulk of them being on U.S., present a mixed
picture. 3/ Studies on developing countries also presents ambiguous results. 4/ The tone is
that substitution effect and retirement effect offset each other so that the net effect of social
security system on household savings is negligible. 5/ It should be borne in mind that public
pension system in most countries has become, in effect, pay-as-you-go systems and that
coverage and maturity varies widely. Also, their notion of social public pension schemes often
included Provident Funds which may differ considerably in their character and their effects
on savings.
b. Provident funds
Compulsory savings scheme in developing countries takes the form of provident funds
1/ When there is a limited availability of private annuities, this will be the case. This point
is discussed in Sheshinski and Weiss (1981).
2/ Hubbard and Judd (1985) presents results of simulation exercises that show the effect on
household savings of public pension system with and without liquidity constraints.
3/ For a survey see Smith (1989).
4/ Early studies can be represented by Reviglio (1967a, 1967b).
5/ See Kopits and Gotur (1980) and Datta and Shome (1981). The former reports estimates
of the developed countries which shows retirement effect outweighs substitution effect in the
case of public pensions. The latter analyzes time series data for five Asian countries, i.e.
Singapore, Malaysia, India, Sri Lanka, and the Philippines.
-18-
rather than public pension funds which are more prominent among industrial countries. 1/
It is based on employers' contributions during employment supplemented by contributions
from employers. In most cases it is accumulated as an individual fund, and a lump sum
payment, constituting from accumulated contributions plus accrued interest, is made on
retirement. It does not provide annuities nor, in most cases, insurances so that it is essentially
a compulsory deposit scheme subsidized by employers. 2/
To the extent that it is to provide for post-retirement consumption, it can be regarded as a
substitute for life-cycle savings. However, the amount of savings in this case is not under
control of the households so that part of it may constitute a forced savings; this would be more
applicable the more is the proportion of low income households under cover. Also, the maturity
and the rate of return of the savings are pre-determined so that households' portfolio choice
will be constrained; in this sense it would not be a perfect substitute for a life-cycle savings.
The forced savings effect and the limited substitutability effect as well as the fact that
provident funds are "fully funded" lead one to suspect that they may have a considerable
positive effect on the aggregate savings. Unfortunately, empirical studies which deals with
provident funds explicitly is limited. 3 /
Some studies have been done on Malaysia but
provides contradictory results. The best that could be said from them may be that they do not
have significant negative effect on the total savings rate. 4/
Of the countries compared, Thailand is the only country which currently do not have any
social security scheme nor a Provident Fund. 5/
All other countries have some kind of a
scheme; Provident Funds exist in all but the Philippines and Korea; and the latter two has
1/ A list and a summary of the contents of provident funds in various countries, as well as
those of other types of social security system can be found in U.S. Department of Health and
Human Services (1988).
2/ SNA excludes provident funds from social security schemes, and therefore from the government and
includes them in the private sector.
3/ For a preliminary survey see Shome (1976). Of the five Asian countries that Datta and
Shome (1981) analyzes, all but the Philippines have provident funds. Asher (1985) analyzes
the provident fund in Singapore though no attempt is made to estimate its effect
econometrically.
4/ Saito and Shome (1977) concludes that savings in the form of provident funds in no way
adversely affected savings in other forms and, in fact, may have affected to increase them.
Kharas (1989), on the other hand, concludes that provident fund does not seem to have
increased private savings and that it may have been the cause of a slight decline of the rate.
5/ A legislation that aims to establish a social security system has passed the House of Representatives
in July, 1989.
-19-
fairly comprehensive social insurance schemes. 1/ 2/
It is interesting to see that those countries that have high savings rate are the countries
which have drawn considerable savings through the Provident Funds. The latter is the result
of high contribution rate and wide coverage. For instance, Central Provident Fund (CPF) in
Singapore between 1984 and 1986 required contribution; from the employees a maximum
amount being equivalent to 25 percent of their earnings, and from the employers also 25
percent (they have declined somewhat to 22 and 16 percent, respectively by July 1989). The
members of the Fund constitutes more than 80 percent of the total employed. Similarly is the
Employees Provident Fund (EPF) in Malaysia. (Table 5) Forced savings aspect of the Funds
emerges from these observations. It may be interesting to note, however, that EPF in Malaysia
has allowed withdrawals for the purpose of purchasing low price houses. Similar provision also
came into effect for CPF in Singapore. These provisions make the savings in the Fund more
liquid and enforces the substitutability of these savings to the original life-cycle savings. The
implication may be that the forced savings aspect may become less and less important in these
countries. 3/
7. Tax system
The effect of tax system on savings is ambiguous on theoretical grounds. Suppose we
compare general income tax (all incomes taxed), labor income tax (capital income exempted),
and expenditure tax. Under the assumption of fixed labor supply, general income tax would
have both an income effect and an intertemporal substitution effect. On the other hand, both
labor income tax and expenditure tax would only involve income effects. In this sense general
income tax clearly has a distortionary effect against savings. However, if the budget constraint
of the government is considered, to the extent that the lost income on capital income tax has
to be compensated by an increase in revenue from other taxes, what should be compared are
general income tax and labor income tax or expenditure tax with higher tax rate; it implies
larger income effects. In this case, it is impossible to determine which form of tax has larger
negative effect on savings.
1/ Lahiri (1989) finds Thailand to be "the only country in which private savings rate appears
to decline in the long run with lower age dependency" (p. 243)). This may be attributable to
lack of investment opportunity and lack of compulsory savings scheme which, as a result,
limited the savings in preparation for the old age. The estimate for the Philippines, which is
the only other country showing unsatisfactory result (insignificant coefficient), could be
attributable to the pay-as-you-go social security system.
2/ Korea introduced its social security system in 1988.
3/ This will also be the case if the high growth in these countries is to leave smaller proportion of the
population under "subsistence level".
-20-
This ambiguity becomes more exacerbated when labor supply is endogenized. In this case,
even the substitution effect of interest rate changes on savings becomes ambiguous. Moreover,
the sign of the substitution effect arising from distortion in the labor market, which is
introduced to all three forms of taxes, cannot be determined on theoretical grounds. 1/
Recently, important role played by the intergenerational distribution of tax burden has
been emphasized. For example, a switch from general income tax to expenditure tax or capital
income tax shifts the burden from younger generation to elder generation. Since the former
has a larger marginal propensity to save compared to the latter, this switch would have an
effect of raising the aggregate savings rate. Using the results of simulation models, it has been
shown that expenditure tax would raise the aggregate savings, and the labor income tax would
also have a positive effect, albeit to a lesser extent, while capital income tax would reduce
savings. 2/
This conclusion may have to be qualified somewhat in face of the liquidity constraints. As
we have seen, liquidity constraints results in a higher aggregate savings rate. When a tax
system that would allow tax payment to be deferred to later periods is introduced, to the extent
that it implies a relaxation of the liquidity constraint, it would have the effect of reducing the
aggregate savings rate. Also, liquidity constraint implies low interest elasticity of savings and
low intertemporal substitution effect. This would mitigate the negative effect of capital income
tax on savings.
Tax system also influences the total savings rate through its impact on government
savings. If the revenue is directed toward increasing government savings or decreasing
government dissavings it would contributed in raising the total savings rate. However, if
government consumption increases with the increase in revenue, it may not lead to a rise in
total savings. While the former is theoretically possible, the latter has been claimed as often
being the outcome. 3/
Direct estimates of the effects of tax system has rarely been undertaken. Instead, they
have centered around estimation of interest rate elasticity of savings, which can be interpreted
as the estimate of substitution effects of capital income tax. As we have seen the effect seems
to be small, if any.
1/ See Sandomo (1985).
2/ See Auerbach and Kotlikoff (1987).
3/ This phenomenon is called "Please effect". See Please (1965).
-21-
Table 6 shows a summary of the relative importance of personal income tax and indirect
tax and their tax rates. It shows that; Thailand is in the same group as India and Sri Lanka
which draws high proportion of tax revenues from indirect tax (about 2/3) compared to the
Philippines and Korea (about 1/2) and Indonesia, Malaysia, and Singapore (1/3); and Thailand
has the highest marginal rate of personal income tax at 55 percent, followed by Korea and
India at 50 percent, with others at the range of 30－40 percent.
Table 7 shows how savings and their returns are treated in their tax systems. It reveals
that Singapore provides strong incentives toward savings by allowing pensions and interest
incomes to be exempted, and also by allowing contributions to CPF to be deducted. Malaysia
and Thailand follow with similar exemption provisions in effect. Others, on the other hand,
provide much less incentives, if any.
It is difficult to draw any conclusions from these Tables, especially on the extent to which
these differences in tax system contributed to the difference in savings rates. However, we may
be able to say that tax systems in Singapore is more in a position to encourage savings than
other countries.
8. Determinants of corporate savings
Private corporate profit forms the basis of dividend payment and retained earnings. After
tax payment and stock valuation adjustment the latter is called private corporate savings. It
is clear from this definition that there is a trade off between private corporate savings and
household savings. The more dividend payment the less corporate savings. It is further argued
that the value of corporates are reflected in household wealth so that retained earning is taken
into account by the households when making savings decisions.
However the latter argument would only hold when the shares are valued in an efficient
market and the household is a majority holder that can influence the corporate decision
making. These would not be the case in the developing countries. Lack of efficient capital
market prevents from efficient valuation of the shares. Also, there are many minority
shareholders who cannot influence the corporate decision making. In the case of liquidity
constraint households, there is no assurance that retained earnings would not force him to
reduce consumption further. Furthermore, many corporations are held by other companies or
households abroad. Under these circumstances, corporations are not just veils; it is possible
and necessary to analyze corporate savings independently of household behavior.
Empirical studies seems to suggest that, while households do adjust their savings to offset
-22-
the movement in corporate savings, it is only partially. For a given amount of profit, it implies
that the more retained is the profit, the higher total savings will be.
This highlights the importance of the tax system. First, the distribution of tax burden
between corporations and individuals will have important impact on total savings. The above
findings imply that, in raising a certain amount of revenue, higher total savings will result if
higher proportion of the revenue is drawn from individuals and less from corporations.
Second, while dividend policy determines the split of profits between corporation (retained
profit) and the household (dividends), it, in turn, depends to a large extent on the tax system.
If, for example, the personal income tax rate is higher than the corporate tax rate, it will be
better off for the majority shareholder to retain the profit rather than to distribute it. 1/
Table 6 shows the relative importance of corporate tax as against personal income tax as
well as the corporate tax rate. It shows that Thailand is; among the lowest in terms of the
share of corporate tax in total tax revenue; among the lowest in terms of the share of corporate
tax in total direct tax; and among the lowest in terms of corporate tax rate. In this respect, the
tax system in Thailand can be characterized as being favorable towards savings mobilization
through corporations. The balance between personal income tax rate and corporate tax rate
also shows that it is one of the two countries (the other is Korea) which has tax rate structure
favorable to incorporation; the majority has neutral structure while India is the only one with
the reverse structure.
IV. Measures to stimulate private savings in Thailand
(An outline)
Attaining appropriate level of savings is the key factor in placing the economy on a path
for a balanced-growth. Experience in the Asian developing countries, which we discussed in
the previous section, shows that the level of savings rate is determined by institutional factors
as well as demographic factors. This suggests that there may be some rooms for policy
measures to influence the savings rate.
However, direct measures that could be implemented to stimulate savings are limited. On
the other hand, there are many policy measures that are implemented for other objectives,
which have implications for savings. They not only include measures that would raise savings
1/ This kind of tax system will also have the effect of encouraging businesses to incorporate.
-23-
but also those that would reduce savings.
In the following, some measures that would affect savings are taken up. Some are
measures that could be taken to directly stimulate savings. Others are measures that are
taken to achieve other objectives but also have important implications for savings.
1. Widening and deepening of the financial system
Thailand has experienced high rate of growth in the past three years. Through the
expansion, the economy has transformed itself from one based on agriculture to a more broadbased one. The level of per capita income has risen rapidly, and more and more local economies
are being integrated. It has undoubtedly increased the savings capacity of the economy. It is
important to capture these potential and absorb them in the financial system.
In order to capture the growing savings capacity in the economy, the financial system has
to evolve accordingly. It is important to review and relax restrictions on financial institutions
with regard to their activity, instruments, branch opening, etc. Especially, they should be able
to expand their network to rural areas with menu of assets that match the needs of the area.
2. Interest rate flexibility and financial liberalization
Removing controls on interest rates will have important implications for mobilizing
savings. However, this will not be because of its direct impact on savings; it may be small as
many of the empirical studies suggests. Rather, its importance should be understood in the
context of the broader issue of financial liberalization.
The impact of financial liberalization on the level of savings is complex. To the extent that
there is a positive interest elasticity of savings and that financial liberalization leads to a
higher interest rate, savings will increase. However, to the extent that liquidity constraints of
households are relaxed, savings may fall. Therefore the net impact is ambiguous.
Financial liberalization, on the other hand, enhances the efficiency of the financial sector
and improve the efficiency with which these savings would be utilized. A given amount of
savings can now potentially be used for more productive investments. The implication of
financial liberalization should be recognized mainly in this respect.
3. Social security system
-24-
Social security system has considerable impact on the level of savings. Provident Funds
seems to have the largest positive impact on savings because of their forced savings aspect and
the fully funded nature. While there are some room for debate with regard to the social security
system, it is clear that as long as the system includes old aged pension scheme and financing
is made on fully funded principle, they are more likely to have positive effects. Social security
systems are introduced from the viewpoint of social objectives, but it may be important to bear
the effect on savings in mind when designing the system.
As important as its effect on the level of savings is, again, the efficiency with which the
accumulated funds are utilized; this is more so when, like in the developing countries, the
mobilized savings through social security system account for the bulk of the total savings. In
most cases, the funds are invested in government securities with low rate of return. This
constitutes an implicit tax on the part of the members of the system and also reduces the
efficiency of the government sector. It is important that the funds are managed in a way that
is comparable to that in the private sector.
4. Tax system
The implication of the tax system on the level of savings is complex as we have seen in the
previous section. However, if we can assume that financial liberalization is going to take place
so that liquidity constraints are gradually removed, we can say that moving on to a system
with more emphasis on indirect taxes, lower marginal income tax rate, and interest income
exemptions will encourage the mobilization of savings.
The introduction of the Value Added Tax is, in this sense, a move toward this direction.
The high marginal tax rate on personal incomes, which is higher than the rest of the countries
and higher than the corporate tax rate, could be reviewed from this aspect. Provisions for
deduction of pensions and further exemption of interest incomes can also be considered.
T-1
Table 1. Asian Developing Countries: Savings Rates (1) 1/
(In percent)
1983
1984
1985
1986
1987
Thailand
18.7
20.6
21.2
24.5
23.9
Indonesia
28.3
30.5
28.3
24.9
29.1
Malaysia
30.8
35.5
32.7
31.5
36.9
Philippines
19.9
16.9
16.9
19.1
16.2
Singapore
46.1
45.7
40.1
38.7
39.9
Korea
27.6
30.5
30.5
34.6
37.6
India 2/
20.9
21.3
22.9
22.4
22.3
Sri Lanka
13.8
19.9
11.9
12.0
12.8
Source: World Bank, World Tables (1988－1989 edition).
1/ The ratio of GDS to GDP, as reported in the source.
2/ In fiscal years.
T-2
Table 2. Asian Developing Countries: Savings Rates (2) 1/
(GNS/GNP, in percent)
1983
1984
1985
1986
1987
1988
Thailand
Total
Central Government 2/
Others 3/
21.3
(0.1)
(21.2)
20.9
(－0.1)
(21.0)
19.8
(－1.0)
(20.7)
20.6
(－0.4)
(21.0)
23.3
(1.1)
(22.2)
27.1
－－
－－
Indonesia 4/
Total
Central Government 2/
Others 3/
24.9
(10.1)
(14.8)
27.0
(11.2)
(15.8)
25.4
(9.8)
(15.6)
21.6
(4.9)
(16.8)
24.1
(6.8)
(17.5)
－－
－－
－－
Malaysia 4/
Total
Central Government
Others
27.8
3.7
24.2
30.8
4.4
26.4
27.5
3.2
24.3
26.6
－1.0
25.6
33.4
－2.9
36.3
32.0
－1.2
33.2
Philippines
Total
Central Government
Others
21.2
2.9
18.3
19.9
2.6
17.3
14.7
2.3
12.4
15.3
1.4
13.9
－－
－－
－－
－－
－－
－－
44.6
(12.8)
(31.8)
45.6
(8.9)
(36.6)
41.0
(8.6)
(32.5)
39.8
(9.1)
(30.7)
40.8
－－
－－
－－
－－
－－
Korea
Total
Central Government
Others
28.1
3.7
24.4
30.0
3.3
26.7
29.5
2.8
26.7
33.5
3.2
30.3
36.9
4.0
33.0
38.1
2.4
35.7
India
Total
Central Government
Others
21.0
0.2
20.8
20.7
－0.4
21.1
23.2
－0.6
23.8
19.9
－0.7
20.6
20.2
－1.1
21.3
－－
－－
－－
Sri Lanka 4/
Total
Central Government
Others
13.3
1.1
12.2
17.5
6.3
11.2
11.5
2.2
9.3
11.7
1.8
9.9
12.5
1.3
11.2
11.5
－－
－－
Singapore 4/
Total
Central Government 2/
Others 3/
Sources: National publication on national accounts; and IMF GFS.
1/ Includes revisions and publications made by the authorities since the time data was taken
for Table 1.
2/ In fiscal years.
3/ Simple subtraction of central government from the total.
4/ GNS is obtained by subtracting total final consumption expenditure from GNP.
T-3
Table 3. Asian Developing Countries: Savings Rates (3)
(NNS/NDI, in percent)
Thailand
Total
General Government
Corporations
Public
Private
Household
Philippines
Total
General Government
Corporations
Household
Korea
Total
General Government
Corporations
Household
India
Total
General Government
Corporations
Public
Private
Household
Sri Lanka
Total
1983
1984
1985
1986
1987
1988
15.2
1.3
14.3
0.7
12.6
－0.3
12.9
0.5
16.1
2.5
20.5
5.9
0.8
2.0
11.1
(13.6)
1.2
1.8
10.5
(12.9)
1.6
1.6
9.8
(11.9)
1.5
1.6
9.3
(11.4)
1.7
2.4
9.4
(11.8)
2.0
2.6
10.0
(12.8)
10.6
4.8
4.7
1.0
(1.3)
5.0
4.3
－0.4
1.0
(1.2)
4.6
3.8
－0.6
1.4
(1.6)
－－
－－
－－
－－
(－－)
－－
－－
－－
－－
(－－)
－－
－－
－－
－－
(－－)
20.3
－－
－－
－－
21.9
－－
－－
－－
21.2
6.6
4.2
10.5
(13.5)
25.8
6.5
5.0
14.3
(18.5)
29.1
7.2
5.5
16.4
(21.5)
30.7
－－
－－
－－
－－
11.4
－0.9
10.8
－1.9
13.2
－1.8
12.7
－－
11.1
－－
－－
－－
0.3
0.2
11.9
(13.5)
0.5
0.4
11.8
(13.3)
0.4
0.6
14.0
(16.0)
－－
－－
14.4
(16.1)
－－
－－
13.7
(15.6)
－－
－－
－－
－－
－－
－－
－－
8.5
14.6
9.6
Source: National publication on national accounts.
1/ Figures in parentheses are ratio of net household savings to household disposable income.
T-4
Table 4. Asian Developing Countries: Characteristics Related to Savings
Percentage of
Per capita real
Population growth
population
income growth
(Average for 1983
aged 15－64
(Average for 1983－
－87, in percent) (1985, in percent)
87, in percent)
Per capita
income
(1987 in US$)
Life expectancy at
birth
Thailand
1.9
59.7
3.7
840
64.4
Indonesia
2.1
56.1
1.7
450
57.3
Malaysia
2.8
58.8
0.7
1,810
68.2
Philippines
2.4
56.4
－3.8
590
63.9
Singapore
1.1
70.4
5.2
7,940
72.8
Korea
1.3
64.9
8.7
2,690
69.0
India
2.1
56.3
2.6
300
57.1
Sri Lanka
1.5
60.8
2.0
400
70.3
Source: World Bank, World Tables (1988－89 edition), and Lahiri (1989).
T-5
Table 5. Asian Developing Countries: Social
Security Programs for Old-Age
Country
:
Indonesia
Name of program
Year of introduction
Type of program
Coverage
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
Employees Social Insurance
1951
Provident fund
Establishment with 25 or more employees
or a month payroll of 1 million rupiah or
more a month. Voluntary coverage
available. Special system for
public employees.
Insured person; 1 percent of earnings.
Employer; 1.5 percent of payroll
Government; None
Age 55.
Lump sum equal to employee and
employer contributions paid in, plus accrued
interest.
Country
:
Malaysia
Name
Year of introduction
Type of program
Coverage
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
Employees Provident Fund
1951
Provident fund
Employed workers. Excludes members
of existing equivalent private plans.
Voluntary coverage for domestic workers.
Insured person; 9 percent of earnings
Employer; 11 percent of payroll
Age 55 and retirement from employment
Lump sum equal to total employee and
employer contribution paid in after 1951,
plus compound interest. Employee entitled to
33 1/3 percent of benefit at age 50
without retirement, receives remainder at age
55 Contributor may withdraw up to 10
percent from his credit or M$2,000 whichever
is smaller, to purchase low cost housing.
Contributions
Conditions
Benefit
Contributions
Conditions
Benefit
T-6
Table 5. Asian Developing Countries: Social Security
Programs for Old-Age (continued)
Country
:
Philippines
Name of program
Year of introduction
Type of program
Coverage
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
Social Security System
1954
Social insurance
Employed persons and self-employed with
1,800 pesos or more in annual income.
Excludes domestic servants and family labor.
Special system for government employees.
Insured person; employed 1.6－3.3 percent of
earnings, self-employed 8 percent
of earnings
Employer; 5.1－6.8 percent of payroll
Government; any deficit
Age 60 and 120 months of contribution.
Retirement necessary until age 65, though
earnings up to 300 pesos a month permitted
Monthly pension equals 1.5 percent
of monthly credited earnings for each year of
service in excess of 120 months, plus 42－102
percent of average monthly credited earnings.
Country
:
Singapore
Name of program
Year of introduction
Type of program
Coverage
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
Central Provident Fund
1953
Provident fund
Employed persons earning more than S$50 a
month. Also some self-employed workers.
Excludes members of existing equivalent
private plans. Special pension system for
public employees.
Insured person; 0－25 percent of monthly
earnings
Employer; 10 percent of monthly earnings
Government; None
Age 55.
Lump sum equal to total and employer
contributions paid in, plus at least
2.5 percent compound interest.
Contributions
Conditions
Benefits
Contributions
Conditions
Benefits
T-7
Table 5. Asian Developing Countries: Social Security
Programs for Old-Age (concluded)
Country
:
India
Name of program
Year of introduction
Type of program
Coverage
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
Employees’ Provident Fund
1952
Provident fund
Employees of firms established at least
3 years with 50 or more workers and of firms
(using power) established 5 years with 20－49
workers.
Insured person; 6.25 percent of earnings, or
8 percent for factories with 50 or more
workers.
Employers; 6.25 percent of payroll, or
8 percent for factories with 50 or more
workers, plus 0.65 percent of payroll
for cost of administration.
Age 55 (miners 50) and retirement from
covered employment
Lump sum equals to total employee and
employer contributions paid in, plus
11.50 percent interest.
Country
:
Sri Lanka
Name of program
Year of introduction
Type of program
Coverage
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
Employees’ Provident Fund
1958
Provident fund
Employed persons. Excludes family labor and
employees under approved private plans.
Special pension system for public employees
and local government employees
Insured persons; 8 percent of earnings (may
be increased voluntary)
Employers; 12 percent of payroll
Government; None.
Age 55 (men) or 50 (women). Retirement from
covered employment.
Lump sum equal to total employee and
employer contributions paid in since 1958,
plus interest.
Contributions
Conditions
Benefits
Contributions
Conditions
Benefits
Source: U.S. Department of Health and Human Services (1988).
T-8
Table 6. Asian Developing Countries: Tax Revenues and Tax Rates
Share in total tax revenue
(1988, in percent)
Corporate
Personal
Indirect
Personal income tax
rates
(In percent)
Corporate tax
rate
(In percent)
Thailand
17:
15:
68
5－55
30－35
Indonesia
63:
6:
31
15－35
15－45
Malaysia
47:
16:
37
5－40
40
Philippines
[
46
]:
54
0－35
35
Singapore
[
59 1/
]:
41
3.5－33
33
Korea
21:
24:
55
5－50
20－33
India
16:
13:
71
0－50
50－60
Sri Lanka
15:
7:
78
10－40
40
Source: International Bureau of Fiscal Documentation, Taxes and Investment in Asia and
the Pacific, etc.
1/ Ratio between corporate and personal income taxes are roughly 70:30.
T-9
Table 7. Asian Developing Countries: Exemption and
Deduction Provisions for Personal Income Tax
Exemptions of
Pensions
Interest income
Deductions of
Contribution to pension program
Thailand
Yes
Yes 1/
No
Indonesia
No
No
Yes
Malaysia
Yes
Yes 2/
No
Philippines
No
No
No
Singapore
Yes
Yes 3/
Yes
Korea
No
No
No
India
Yes
No
No
Sri Lanka
No
No
No
Source: International Bureau of Fiscal Documentation, Taxes and Investment in Asia and
the Pacific.
1/ Interest on savings deposits and time deposits with less than three months to maturity.
It has also been reported that withholding tax (15 percent) on interest earned from bank
deposits accounts for less than B 200,000 and more than one year's maturity will be waived
from October 1989.
2/ Interest on savings deposits, time deposits with more than 12 months to maturity, and
interest on Government Securities and bonds.
3/ Interest on deposits in a Post Office Savings Bank.
R-1
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