Savings-Investment Identity
The national income accounting identity stating that in a closed economy, aggregate saving must equal aggregate investment.
What is Savings-Investment Identity?
The savings-investment identity (S = I) is a fundamental national income accounting relationship stating that in a closed economy with no government sector, the total income not spent on consumption must equal the total spending on new investment. Extended to include government and international flows, the identity becomes: Private Saving + Government Saving + Foreign Saving = Investment. This is not a behavioral theory but an accounting identity — it holds by definition at the macroeconomic level. It underpins loanable funds theory and highlights why a fall in national saving (such as from a fiscal deficit) must be offset by reduced investment, increased foreign borrowing, or both.
Example
In 2023, the U.S. ran a federal deficit of $1.7 trillion (negative government saving). Private saving was insufficient to fund both domestic investment and the deficit, so the gap was filled by foreign saving — reflected in the U.S. current account deficit — consistent with the savings-investment identity.
Source: Bureau of Economic Analysis — National Income and Product Accounts