National saving is income not consumed or used by government
Start with an economy's output, Y = 20,000. Households consume C = 13,600 and the government buys G = 3,600 of goods and services. What remains, S = Y − C − G = 2,800, is national saving: output available to add to the stock of capital, at home or abroad.
National saving has nothing to do with the balances in savings accounts. Moving money from one account to another changes no one's consumption or the government's purchases, so it changes national saving not at all.
Worked example
S = 20,000 − 13,600 − 3,600
S = 2,800 (14% of output)
Private saving plus public saving
Add and subtract net taxes T — taxes minus transfer payments — and national saving splits in two: S = (Y − T − C) + (T − G). The first bracket is private saving, what households and firms keep from after-tax income; the second is public saving, the government's budget balance.
With taxes of 4,500 and transfers of 1,500, net taxes are 3,000. Private saving is 20,000 − 3,000 − 13,600 = 3,400 and public saving 3,000 − 3,600 = −600: a budget deficit that subtracts from what the private sector saves, leaving the same 2,800.
Worked example
Sp = 20,000 − 3,000 − 13,600 = 3,400
Sg = 3,000 − 3,600 = −600
S = 3,400 − 600 = 2,800
Saving funds investment — at home or abroad
In a closed economy, output not consumed or bought by the government must be investment, so S = I. In an open economy there is a second use: lending abroad. Net capital outflow (NCO) is residents' purchases of foreign assets minus foreigners' purchases of domestic assets, and S = I + NCO.
Our economy invests I = 3,300, more than it saves. So NCO = 2,800 − 3,300 = −500: foreigners supply 500 of saving, about 15% of the economy's investment, by buying its assets or lending to it.
Worked example
NCO = S − I
NCO = 2,800 − 3,300
NCO = −500
Net capital outflow always equals net exports
Every international sale has a financial counterpart. An exporter paid in foreign currency acquires a foreign asset; an importer pays with domestic currency, handing a domestic asset to a foreigner. Net the two flows and the value of goods and services leaving must equal the value of assets coming in: NCO = NX.
So the economy with NCO = −500 must run a trade deficit of 500 — exports of 2,300 against imports of 2,800. The trade deficit and the capital inflow are one event, described from the goods side and the financial side.
Worked example
X = 2,300, M = 2,800
NX = −500 = NCO
Twin deficits, and when they are not twins
Put the pieces together and the budget balance reaches the trade balance. Raise government purchases by 400 with taxes, consumption and investment unchanged: public saving falls to −1,000, national saving to 2,400, and with investment fixed, net capital outflow and net exports fall to −900. The wider budget deficit becomes a wider trade deficit.
Every budget deficit produces an equal trade deficit. The link runs through saving and investment, and both can move. If households expect future taxes to repay the borrowing and save more — Robert Barro's Ricardian equivalence — national saving need not fall; if investment falls because interest rates rise, the trade balance need not move. The United States has seen both deficits widen together and also move apart.
Worked example
ΔG = +400
Sg: −600 → −1,000
S: 2,800 → 2,400
NCO = NX: −500 → −900
The US position, in the national accounts
The United States has invested more than it saved in most years since the early 1980s. The accumulated result is its net international investment position — US-owned foreign assets minus foreign-owned US assets — which the Bureau of Economic Analysis put at −$21.3 trillion in the first quarter of 2026. Its net exports were −$876 billion at an annual rate in the second quarter of 2026.
Public dissaving is part of the story: the federal deficit was $1.77 trillion in fiscal year 2025, about 5.8% of GDP. And net of depreciation, US national saving was negative in every quarter from 2008 to mid-2010 and briefly again in the second half of 2024.
Common mistakes
Counting bank-account transfers as saving.National saving changes only when consumption or government purchases change relative to income.Leaving transfers out of net taxes.Transfers raise private saving and lower public saving by the same amount, so the split is wrong if they are ignored.Reading a trade deficit as money lost.It is matched one-for-one by foreign purchases of domestic assets; what matters is what the inflow funds.Assuming the identity says what causes what.It must hold, but it does not say whether saving, investment or the budget moved first.