10.4225/03/5938ad5a16094 Guest, Ross S. Ross S. Guest McDonald, Ian M. Ian M. McDonald The Socially Optimal Level of Saving in Australia, 1960-61 to 1994-95 Monash University 2017 monash:7174 1997 1959.1/36930 2017-06-08 01:50:16 Journal contribution https://bridges.monash.edu/articles/journal_contribution/The_Socially_Optimal_Level_of_Saving_in_Australia_1960-61_to_1994-95/5090341 In this paper a model is developed which determines the socially optimal level of saving for a small open economy. The model also determines the socially optimal-disposition of saving between domestic capital accumulation and overseas asset accumulation. The model is then applied to the Australian economy for the period 1960-61 to 1994-95. For each year of that period socially optimal levels of saving investment and the current account of the balance of payments are determined. Two main conclusions emerge. Firstly, while Australia under-saved by an average of 1.7% of GDP from 1974/7s5 to 1994/95, it over-saved by an average of 5.3% of GDP in the earlier period from 1960-61 to 1973-74. Secondly, Australia did not make optimal use, of world capital markets to smooth consumption in the period from 1960-61 to 1994-95; although there is less, evidence for this since 1984-85, suggesting that deregulation of capital markets may have facilitated the optimal smoothing of consumption.