Why Save? "In the long run we are all dead!" - K.
Your interesting question brings more questions. Because the short answer is: it depends.
Part A - Diagnostic
What phase of the business cycle are you in?
You first need to make a diagnostic of the shape and timing of the economy your are analyzing.
The timing of the business cycle is of prime importance. In a downturn it may affect negatively, while in an era
of overheating it might be a good thing to calm things down. Has the government surpluses?
Is the economy growing? Are people optimist about the future?
It is a closed economy or a globalized one?
A globalized but stagnant-growth economy could see an outflow of capital, if "agents" see more investments opportunities abroad.
This is a key question. Where those new factories will be built. The economy is not a zero sum game but wealth will not be equally distributed. In a closed system, or if the wolrd economy is your level of observation,
more savings could increase investments in productive assets and result in an increase of productivity.
Who are the consumers?
What is the demographics young/old population? It will have an impact on the response both in terms of consumption and investing.
We could argue that a young population will be more adventurous in new projects. Is it a risk/loss averse culture?
Are the consumers into hedonic consumerism, where entertainment and instant gratification is more important than distant benefits?
Is the population in favor of buying local products, or prefer cheap imports?
If you cut consumption of local products you might hurt your domestic market, or maybe they will cut imports first?
Are your consumers poor or rich?
Are there good institutions in place?
Do people trust the government/ each other? Is there a lot of corruption?
Is there efficient financial markets to invests the savings in?
In India, gold is a popular forms of savings.
What is the economic struture, the dominant type of industries?
Oil is a dominant sector in Norway, which command a large share of gdp, exports and governmental revenues. By reducing the consumption
you will affect less the vigor of the economy. A country with a large industrial business to business (B2B) economy may profit
from more investments.
Do the economy needs more savings?
If you assume we are at the dawn of the thirs industrial revolution, in which IT leads our civilization into a new era, maybe
you don't need that much more savings. The tech-savy "creative class" mostly need a computer and an internet connection to launch
a business. You do not need the same large investments in machinery as in the 1st and 2nd revolutions, where pooling capital and sharing risks
was a condition for developping for example the railroad systems.
Once you have made a diagnostic of the situation you can look at the effects:
Part B - Possibles Outcomes:
1- How much can consumers save?
As Lumi observed, most people live on a tight budget (In fact via credit they spend more than their annual income).A small increase in savings will probably have a minimal impact both on consumption and investments levels.
1b) What are they going to save on?
Spending cuts will affect the basket of goods and services that they usually consume.
If there is a sales tax, a decrease in consumption will diminish the revenues of the government (hopefully only in the sort run), and if
the government must also cut back its spending we could perhaps see an amplification of the action, and a contraction of the economy.
Why would business invests if both government and consumers stops spending?
1c) How much consumers are willing to save/sacrifice?
This has to do with time preferences, and perhaps the inflation levels, the interests rates, other cultural traits like attitude towards savings...
2- Where will the savings be invested?? Short vs long run?
This depends on multiple factors (see diagnostic). It also depends on the incentives. In your question you only refer to advertisement, but the government can implement other incentives and it will direct where the money go.
For example incentives for retirements savings.
Are they sophisticated investors? How much knowledge do they have about financial markets?
2a) Downturn, optimisim, risk/loss aversion, and forecasts: Will they be willing to take risks? If not, we can expect people to buy secure assets for example bonds.
2b) What are they saving for?
Saving for a wedding or to start a company will have a different impact.
China has experienced what the Austrian School calls "malinvestments", people just bought real estate properties. Apparently there are appartments towers completly empty even empty brand new towns.
2c) Invest in... Education? Housing? Stock Markets?
Investment in education could have long term positive effects (hopefully). In housing it could lead to a bubble... Sotck markets, facilitate outflow of capital, and offshoring of manufacturing.
2d) Save for... Retirements, or decrease in working hours or travels.
What if people having more savings decide to work less? Early retirment, or more part time jobs? How would this impact the productivity? Debts are a forced incentive to postpone retirment age.
3- Will the savings translate in productive investments?
more cash = hoarding, possibly merge and acquisition waves? Will they lead to an increase productivity or more complacency due to reduced competitivity?
Conclusion: What is the total effect?
It really depends on the situation. For individuals there are great benefits to have a little cushion to face unexpected situations, it also opens the way to new opportunities. But will they/ can they seize them? For the government it may mean less revenues in the short run, and must therefore be ready for it. For companies it depends to which purpose the money will be used for.
Reducing consumer spending, might contract the personal goods/services sector, leaving with less diversity in the end. Or if people take the opportunity of having more available money to invest in order to launch new businesses it might just do the opposite.
At the moment, the strategy is to facilitate access to credit and to promote high levels (almost unsustainable) of consumption. A supply-side economy needs a high level of C.