Private and national saving after a tax change, if spending does not respond and if the MPC share of the change is spent. Income and government purchases held fixed.
Tax change
Private saving (spending unchanged)
Private saving (MPC spent)
Change in national saving (MPC spent)
−500
3,900
3,500
−400
−200
3,600
3,440
−160
−100
3,500
3,420
−80
+100
3,300
3,380
80
+200
3,200
3,360
160
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What it calculates: Private saving (Sp), Disposable income, Net taxes (T), Private saving rate.
Updated 22 September 2026 · Transparent assumptions
Income of 20,000, net taxes of 3,000 and consumption of 13,600 leave private saving of 3,400
Private saving is what the private sector — households and businesses — keeps from its income after paying taxes and buying consumption goods. In symbols, Sp = Y − T − C, where T is net taxes: taxes paid minus transfer payments received. In the worked economy ($ billions) that is 20,000 − 3,000 − 13,600 = 3,400.
Sp = Y − T − C
Divided by disposable income of 17,000, that is a private saving rate of 20%, and the average propensity to consume is 13,600 ÷ 17,000 = 0.8.
Worked example
T = 4,500 − 1,500 = 3,000
Yd = 20,000 − 3,000 = 17,000
Sp = 17,000 − 13,600
Sp = 3,400
Transfer payments of 1,500 raise disposable income just as a 1,500 tax cut would
Pensions, unemployment benefits and interest on government debt move money from the government to households without buying anything in return. For private saving they work as negative taxes: disposable income is income minus taxes plus transfers, which is why T in the formula is net of them.
Yd = Y − taxes + transfers
The same payments reduce public saving, so they cancel out of national saving. A transfer changes who saves, not how much the nation saves, until the recipients spend it.
Private saving includes profits firms keep, not only what households put aside
Corporate profits that are not paid out as dividends — retained earnings — are private saving, even though no household sees them. In the US national accounts, business saving is usually a large share of private saving, which is why the widely quoted personal saving rate (3.0% in July 2026) is much lower than the private saving rate.
When comparing figures, check which one is meant. The personal saving rate is households only, measured against disposable personal income; private saving in the national saving identity is households and firms together.
A 100 tax cut with an MPC of 0.8 raises private saving by 20 and cuts national saving by 80
A tax cut raises disposable income by its full amount. If households spend the MPC share, private saving rises only by the rest: with an MPC of 0.8, a 100 cut adds 80 to consumption and 20 to private saving. Public saving falls by the full 100, so national saving falls by 80. The table on this page shows the result for tax changes of different sizes.
If instead households save the entire tax cut — the Ricardian case, in which they expect future taxes to repay the new debt — private saving rises by 100 and national saving is unchanged. Real responses lie between the two, which is why the table shows both.
A 100 tax cut
ΔC = 0.8 × 100 = 80
ΔSp = 100 − 80 = +20
ΔSg = −100
ΔS = 20 − 100 = −80
Private saving is the supply side of the market that sets interest rates
In the loanable-funds model private saving is supplied to borrowers — firms investing and governments running deficits — and the real interest rate adjusts until the amount saved equals the amount borrowed. Higher private saving at every interest rate shifts supply outward and lowers rates, encouraging investment.
A government deficit adds to the demand for funds, pushing rates up and crowding out some private investment unless foreign saving flows in to meet it. The public savings calculator follows the government side of that market.
Three ways private saving is misread
Each of these confuses a related number for private saving.
Using gross taxes. Transfers flow back to households, so taxes must be taken net of them.
Quoting the personal saving rate. It excludes business saving and uses a different denominator.
Adding private saving to investment. Private saving is a source of funds for investment, not a part of it.
Frequently Asked Questions
What is the formula for private saving?
Private saving is Sp = Y − T − C: income minus net taxes minus consumption, where net taxes are taxes paid minus transfer payments received.
Do transfer payments count in private saving?
Yes, as negative taxes. They raise disposable income, and whatever part of them is not spent adds to private saving.
Is private saving the same as the personal saving rate?
No. The personal saving rate covers households only and is a percentage of disposable personal income. Private saving also includes businesses’ retained earnings.
How does a tax cut affect private saving?
It raises private saving by the part not spent: (1 − MPC) × the cut. National saving still falls unless households save the whole cut, because public saving drops by the full amount.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Results are estimates for planning and analysis based on the figures you enter. They are not accounting, tax, or financial advice — verify with your own records and a qualified professional before making decisions.