Public goods,voting, and growth

We study a parametric politico‐economic model of economic growth with productive public goods and public consumption goods. The provision of public goods is funded by a proportional tax. Agents are heterogeneous in their initial capital endowments, discount factors, and the relative weights of public consumption in overall private utility. They vote on the shares of public goods in gross domestic products (GDP). We propose a definition of voting equilibrium, prove the existence and provide a characterization of voting equilibria, and obtain a closed‐form solution for the voting outcomes. Also we introduce a “fictitious” representative agent and interpret the outcome of voting as a choice made by a central planner for his benefit. Finally, we undertake comparative static analysis of the shares of public goods in GDP and of the rate of balanced growth with respect to the discount factors and the preferences for public consumption. The results of this analysis suggest that the representative‐agent version of our model is capable of capturing the interaction between many voting heterogeneous agents only if the heterogeneity is one‐dimensional.     

Consumption aspirations in dirty and clean goods and economic growth

This paper builds a two-sector, two-factor environmental model in which agents optimally choose the clean and dirty goods in order to display their social status. In contrast to the conventional notion, we show that greater social aspirations in consumption regardless of either clean or dirty goods have an ambiguous impact on growth, depending on whether the production of conspicuous goods is relatively labor- or capital-intensive, whether the production of conspicuous goods generates more or fewer emissions, and whether labor supply is or is not responsive to social status seeking. By connecting two conflicting aspects of consumer preference involving social aspirations and environmental concerns, our analysis offers a novel explanation for the environmental Kuznets curve and a theoretical support for the empirical possibility of a negative employment-growth relationship and the so-called Green New Deal. Our welfare analysis shows that social comparisons in consumption may increase, rather than decrease, social welfare. The Pigovian tax may only be socially sub-optimal in the two-sector economy because it is unable to completely correct the distortion caused by consumption externalities.     

Satiation in an evolutionary model of structural economic dynamics

This paper presents the problem of satiation of consumption and technology in relation to a model of evolutionary endogenous growth. The model represents an attempt to provide an evolutionary economic micro foundation to Pasinetti's scheme of the structural economic dynamics of an economy that is based on only labour and knowledge. The micro foundation is based on a set of rules that makes endogenous the demand coefficients, the labour coefficients, and the number of available sectors. Through process innovations firms increase their productivities with respect to individual goods, but a growth slowdown takes place unless the benefits from specialisation are exploited at still higher levels. Another cause for slowdown is related to an Engelian hierarchy of goods. As the standard of living grows, existing sectors and consumption goods satiate, so new sectors need to be provided by product innovations in a sufficient pace to keep up with the labour that is displaced from old sectors.     

Public Good Provision Under Monopolistic Competition

This paper presents a model of voluntary private provision of public good under monopolistic competition following Pecorino. Consumers prefer product varieties and a public good. Marginal utility of income depends inversely upon the aggregate consumption of private goods in this model. As population size increases, aggregate consumption of private goods goes up and marginal utility of income falls. This explains the positive relationship between population size and public good provision. Any technological changes in the production of private goods are shown to be neutral to the aggregate provision of public good. These results are in contrast to Pecorino.     

Toward an efficiency rationale for the public provision of private goods

Public provision of a private goods is justified on efficiency grounds in a model with no redistributive preferences. A government’s involvement in the provision of a private good generates information about preferences that facilitates more efficient revenue extraction for the provision of public goods. Public provision of the private good improves economic efficiency under a condition that is always fulfilled under independence and satisfied for an open set of joint distributions. The efficiency gains require that consumers cannot arbitrage the publicly provided private good, so our analysis applies to private goods where it is easy to keep track of the ultimate user, such as schooling and health care, but not to easily tradable consumer goods.     

OPTIMAL CAPITAL TAXES FOR PUBLIC GOOD PROVISION*

This paper constructs a general equilibrium trade model of a small open economy that produces many traded private goods and one non-traded public consumption good. Trade in goods is free, but the country taxes the internationally mobile capital to finance the provision of the public good. Within this framework, the paper identifies the conditions under which the optimal policy on the internationally mobile capital calls for a tax. Under the assumptions that (i) the welfare function is concave with respect to the tax rate, and (ii) the net revenue-maximizing capital tax rate is positive, it is shown that the marginal cost of the public good always understates its social marginal cost.     

PRIVATE GOOD,EXTERNALITY, PUBLIC GOOD*

In two recent investigations into the economic problems of externality the authors have noted in passing that the welfare or optimality conditions in the case of a consumption externality seemed identical with the welfare conditions in the case of public goods as originally stated by Samuelson.¹ The purpose of this paper is to demonstrate that the welfare conditions for a public good are a special case of the welfare conditions for a consumption externality where a public good is defined as a good ‘which all enjoy in common in the sense that each individual's consumption of such a good leads to no subtraction from any other individual's consumption of that good’ (Samuelson [4]). Since the welfare conditions for a private good are also a special case of the welfare conditions for a consumption externality, it follows that we have a range of externality with the pure private good and the pure public good as polar cases.     

Community-Based Tradable Permits for Localized Pollution

This paper considers the assignment of tradable permits—representing property rights of an environmental good—to community members who are harmed by pollution generated by firms. These community members can in turn sell permits to polluters according to their personal preferences. For a special case with a sole household, market transactions between the household and polluters achieve an efficient pollution level. However, for a group of households, the decentralized market solution fails to yield social efficiency because of competitive consumption of the environmental goods. We design a revenue-sharing mechanism akin to unitization, under which market transactions also achieve efficient resource allocation. Importantly, in some cases, efficiency can be achieved even when regulators are ignorant of the private valuation of the environmental good.     

Should governments stop subsidies to private goods? Evidence from rural Latin America

This paper empirically documents the effects of subsidizing private goods to the detriment of the government's supply of public goods. We use a new data set from the rural sector in fifteen Latin American countries over the period 1985–2001 collected using a methodology that allows us to separate government subsidies to private goods from expenditures in the provision of public goods. The econometric evidence shows that the government's decision to subsidize either private or public goods has dramatic consequences for economic development. Reducing the share of subsidies to private goods (or, equivalently, increasing the share of public goods) in the government's budget has, ceteris paribus, a large and significant positive impact on rural per capita income, reduces certain undesirable environmental effects associated with output expansion, and contributes to poverty reduction.     

Effluent taxes,market structure,and the rate and direction of endogenous technological change

This paper studies the effects of effluent taxes on firms’ allocation of resources to cost-reducing and emission-reducing R&D, and on entrepreneurs’ decisions to develop new goods and enter the market. A tax set at an exogenous rate that does not depend on the state of technology reduces growth, the level of consumption of each good, and raises the number of firms. The induced increase in the variety of goods is a benefit not considered in previous analyses. In terms of environmental benefits, the tax induces a positive rate of pollution abatement that offsets the “dirty” side of economic growth. A tax set at an endogenous rate that holds constant the tax burden per unit of output, in contrast, has ambiguous effects on growth, the scale of activity of each firm and the number of firms. Besides being novel, the potential positive growth effect of this type of effluent tax is precisely what makes this instrument effective for welfare-maximizing purposes. The socially optimal policy, in fact, requires the tax burden per unit of output to equal the marginal rate of substitution between the growth rate of consumption and abatement. Moreover, a tax/subsidy on entry is needed, depending on whether the contribution of product variety to pollution dominates consumers’ love of variety.      

A generalized impure public good and linear characteristics model of green consumption

This paper provides a general framework for understanding consumer behavior related to goods and services that may be considered environmentally friendly, ethically produced, fairly traded, or some combination thereof. We generalize the impure public good model and derive its comparative static properties. The model accounts for any number of impure public (green) goods and joint production of any number of both private and public characteristics. The generalization provides a bridge between the impure public good model and the well-known linear characteristics model, both of which are special cases of the model developed here. The results show how demand for green goods and characteristics such as environmental quality depends on wealth, exogenously given levels of public goods, and the technologies of joint production. The effects of changes in technology depend critically on whether jointly produced characteristics are complements or substitutes in consumption. Several of the results are rather counterintuitive and differ in meaningful ways from existing models of impure public goods and linear characteristics. The results also illuminate several reasons for greater caution about whether it is reasonable to assume that green goods and services are necessarily beneficial for the provision of public goods.     

Public investment,taxation, and long-run output in economies with multi-level governments

This paper examines the dynamic effects of taxation and investment on the steady state output level of an economy. A simple neoclassical growth model with different tiers of government is developed. The initial focus is on governments that aim to maximise their citizens' welfare and economic performance by providing consumption goods for private consumption and public capital for private production. It is shown that a long-run per capita output maximising tax rate can be derived and that there also exists an optimal degree of fiscal decentralisation. The analysis then extends to the case where governments attempt instead to maximise their own tax revenue to fund expenditures which do not contribute to the utility of their citizens. Three different cases of taxation arrangement are considered: tax competition, tax sharing, and tax coordination. The modeling shows that intensifying tax competition will lead to an increase in the aggregate tax rate as compared to the cases of sharing and coordination amongst governments. These tax rates are both higher than the long-run per capita output maximising rate that was implied under the welfare maximising government scenario.     

Consuming your way to efficiency: Public goods provision through non-distortionary tax lotteries

We revisit the classical result that taxation of private consumption is distortionary and therefore precludes the efficient provision of public goods. We introduce a nonlinear consumption tax which we call a ‘tax lottery’. Under this scheme, an ad-valorem consumption tax is supplemented with a lottery in which consumers can win cash prizes. The winning probabilities in this lottery depend on all consumers' private good consumption decisions. We show that for a given ad-valorem tax, an appropriately designed lottery can implement an efficient allocation in pure-strategy Nash equilibrium. The lottery component corrects the distortion in private consumption due to the ad-valorem tax, while the resulting tax revenue is sufficient to efficiently provide the public good and pay out the lottery prize.     

私人参与公共环境服务供给的路径选择

由于环境服务的大部分内容具有公共物品属性,所以在我国长期以来主要由政府负责供给,对财政支出造成巨大的压力.在研究西方私人供给公共物品的理论的基础上,结合我国的实际情况,为我国私人参与公共环境服务供给提供现实的路径选择.     

Consumption externalities and the effects of international income transfers on the global environment

In this paper, we extend the standard model of private provision of public goods by including consumption externalities to characterize a situation in which economic activities pollute the environment. We consider a case in which there are an industrial country which can afford to invest in the environment and a developing country which cannot. Then, we show that international income transfers in both directions can improve the global environmental quality as well as the welfare of each country. We also show that the results have important implications for policies such as official development assistance or the assignment of tradable emission permits.     

General equilibrium impact of an energy-saving policy in the public sector

We analyse a disregarded environmental policy instrument: a switch in government expenditure away from energy (or other natural resources) and toward a composite good which includes energy-saving expenditure. We first develop two variants of an analytical general equilibrium model. A composite good is produced with constant returns to scale, and energy is imported or produced domestically with diminishing returns, yielding a differential rent to its owners. The government purchases energy and composite goods from private firms. Such a policy unambiguously increases employment. It also raises private consumption and welfare under two conditions: (i) it is not too costly and (ii) the initial share of the resource is smaller in public spending than in private consumption, or the difference is small enough. We then run numerically a model featuring both importation and domestic production of energy (oil, gas and electricity), for the OECD as a whole. Simulations show that employment, welfare and private consumption rise. We provide magnitudes for different parameter values. Earlier versions of this paper have benefited from conference participants at the European Council for an Energy-Efficient Economy, International Society for Ecological Economics World Congress, CIRED seminar and EUREQua environmental economics seminar. We especially thank Michèle Sadoun and two anonymous referees. The usual disclaimer applies.     

Unique and multiple equilibria in a macroeconomic model with environmental quality: An analysis of local stability

This paper develops and analyzes an economic growth model which incorporates environmental quality into the production and utility functions. We solve our model for the balanced growth path and find that a unique low growth equilibrium is attained when environmental quality is given less weight in the utility function. Multiple equilibria exist if environment quality is given greater weight in the utility function. We also perform local stability analysis of our model. We conclude that an economy in which the environmental quality is given relatively less importance by the agents will be caught in low growth, high consumption poverty traps as is the case for many developing countries while other economies can potentially reach a relatively low consumption, high growth steady state if they place greater weight on environmental quality. Finally we look at how the gap between low and high growth equilibria shrinks when individuals place greater weight on environmental quality and how governmental policies can promote growth when societies give less weight to the environment.     

FISCAL STRUCTURAL REFORM AND ECONOMIC ACTIVITY: PUBLIC SPENDING AND PRIVATE EFFORT*

This paper explores governments' and private agents' incentives to implement or postpone fiscal structural reform attempts. Both fiscal consolidation and fiscal reorganization often create spillover effects and thereby induce free‐riding problems. It is thus important to cope with the free‐riding behaviour of interest groups. It is often argued that in order to attain successful outcomes, a good macroeconomic situation is needed, since we expect positive income effects. In this paper, we first explain the dynamic aspects of insufficient fiscal consolidation due to free‐riding problems in the framework of private provision of public goods. Then, using a static model between central and local governments, we examine the sign of income effects for reform attempts to pursue fiscal reorganization. It is shown that good economic circumstances do not necessarily enhance reform of reorganizing fiscal expenditures, although it could enhance fiscal reconstruction.     

A comparative study of environmental amenity valuations

The paper reports on a comparative study of direct and indirect approaches to valuing environmental amenities (i.e., public goods), specifically, air quality in terms of its human health effects. The application of three indirect valuation methods (via market goods) is reported here: the health production method, a consumer preferences (for nonmarket goods) model, and the cost of illness method. The first and second methods are (economic) behavior-based approaches where willingness to pay for an environmental good is derived by exploiting relationships in consumption between the public good and market good(s). The third method is based on a physical relationship—a dose-response function—between the environmental good and health. The direct valuation approach encompassed three contingent valuation elicitation formats: open-ended, modified iterative bidding game, and referenda-style binary choice. The application of all four methods was based on data from a survey of a large, stratified sample of households from the Haifa metropolitan area in northern Israel. The estimates of welfare change derived by the various methods are discussed and compared.     

政府、居民消费与中国经济增长的因果关系

本文运用协整、格兰杰因果检验和向量自回归模型,利用1978—2006年的年度经济数据对我国政府消费、居民消费和经济增长的关系进行层次递进的实证分析,实证结果表明：我国居民消费、政府消费和经济增长之间存在长期均衡关系,居民消费增长是经济增长的因果原因,政府消费增长是居民消费增长的因果原因。