I am reading an IMF paper about China's debt (link) which says:

❝ Despite a large augmented fiscal deficit of 10 percent, fiscal savings remain higher than other countries, resulting from the biased composition of spending towards investment ❞

How can a government have deficit and at the same time have positive savings?


Government can have savings while having deficit because we are just talking about savings not net savings.

For example, imagine that government has zero tax revenue $\\\$10$ spending and $\\\$10$ of public investment. In this case the government is running deficit of $\\\$20$ yet it is also saving through investment. Due to the deficit being larger than saving on net basis government still dis-saves but saving is not zero.

So it is completely possible to save and run a deficit at the same time.

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    $\begingroup$ @elemolotiv no net saving is tax revenue-government spending (T-G). In this case that would be $-\$10$. $\endgroup$ – 1muflon1 Jul 22 at 11:37
  • $\begingroup$ sorry I am trying to pull things together. From $Y=C+I+G+NX$ we can derive $(Y-C-T)+(T-G)=I+NX$. That includes $NetSavings=(T-G)$ but where does government investment go? - alternatively could you suggest a source with all the formulas? thanks! $\endgroup$ – elemolotiv Jul 22 at 12:55
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    $\begingroup$ @elemolotiv government investment is part of $I$ in some undergraduate textbooks $I=S$ but that’s simplification actually even better undergraduate textbooks will mention its $I=S+T-G$. See for example Blanchards et al macroeconomics an European perspective $\endgroup$ – 1muflon1 Jul 22 at 13:07

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