Which of the four government policies to stimulate saving is essential

Which of the four government policies to stimulate saving is essential? That is, which policy can on its own, regardless of the other policies, determine the level of the national saving rate?

What will be an ideal response?

ANSWER

Reduce budget deficits. A higher tax on consumption will increase national saving only if the government doesn’t spend all of the increased tax revenue. Tax incentives that reward private saving directly, or encourage private saving by increasing the return on assets, will raise national saving only if government spending is reduced to correspond to the decrease in tax revenues. If nothing is done to promote private saving, national saving can be raised by lowering the government’s budget deficit.