Autonomous government expenditure growth,deficits, debt,and distribution in a neo-Kaleckian growth model

This article is linked to some recent attempts at including a noncapacity creating autonomous expenditure category as the driver and determinant of growth into Kaleckian distribution and growth models. Whereas previous contributions have focussed on taming Harrodian instability, generated by the deviation of the goods market equilibrium rate of capacity utilization from a normal or target rate, we rather focus on the so-far neglected issues of deficit, debt, and distribution dynamics in such models. For this purpose, we treat the growth of government expenditures on goods and services, financed by credit creation, as the exogenous growth rate driving the system. We examine the long-run convergence of the system toward such a growth rate, analyze the related debt dynamics, and deal with stability and income distribution issues. Finally, we touch upon the economic and, in particular, fiscal policy implications of our model results.     

Social security in a Classical growth model

This paper develops a growth model with overlapping generationsof workers who save for life-cycle reasons and Ricardian capitalistswho save from a bequest motive. The population of workers accommodatesgrowth, so that the rate of capital accumulation is endogenousand determines the growth of employment. Two regimes are possible,one in which workers' saving dominates the long run and a secondin which the long-run equilibrium growth rate is determinedcompletely by the capitalist saving function, sometimes calledthe Cambridge equation. The second regime exhibits a versionof the Pasinetti paradox: changes in workers' saving affectthe level, but not the growth rate, of capital in the long run.Applied to social security, this result implies that an unfundedsystem relying on payroll taxes reduces workers' lifetime wealthand saving, creating level effects on the capital stock withoutaffecting its long-run growth rate. These effects are mitigatedby the presence of a reserve fund, various levels of which areexamined. Calibrating the model to realistic parameter valuesfor the US facilitates an interpretation of the controversiesover the percentage of the national wealth originating in life-cyclesaving and the effects of social security on saving. The modelis offered as an analytical framework for the review of currenttopics in fiscal policy, in particular identifying the socialsecurity reserve fund as a potential vehicle for generatingcapital accumulation and effecting a progressive redistributionof wealth.     

Complementarities and costly investment in a growth model

We develop a one-sector growth model whose key aspect is the combination of the assumptions of internal costly investment in capital and complementarities between capital goods in the production function. Despite the nonlinearity generated by these assumptions, the model delivers a single equilibrium.      

Optimal monetary policy in a New Keynesian model with endogenous growth

We study optimal monetary policy in a New Keynesian (NK) model with endogenous growth and knowledge spillovers external to each firm. We find that, in contrast with the standard NK model, the Ramsey dynamics implies deviation from full inflation targeting in response to technology and government spending shocks, while the optimal operational rule is backward looking and responds to inflation and output deviations from their long-run levels.     

Trade,growth, and convergence in a dynamic Heckscher–Ohlin model

In models in which convergence in income levels across closed countries is driven by faster accumulation of a productive factor in the poorer countries, opening these countries to trade can stop convergence and even cause divergence. We make this point using a dynamic Heckscher–Ohlin model—a combination of a static two-good, two-factor Heckscher–Ohlin trade model and a two-sector growth model—with infinitely lived consumers where international borrowing and lending are not permitted. We obtain two main results: First, countries that differ only in their initial endowments of capital per worker may converge or diverge in income levels over time, depending on the elasticity of substitution between traded goods. Divergence can occur for parameter values that would imply convergence in a world of closed economies and vice versa. Second, factor price equalization in a given period does not imply factor price equalization in future periods.     

Agricultural market policy reforms and growth in Nigerian export crops

The paper investigated the prospect of selected export crops in meeting the demand of emerging commodity and futures market in Nigeria within the context of a counterfactual model, The data covered about three decades （1973-2000）. The model was estimated to capture two economic policies in the period namely stabilization （1973-1985） before introduction of Structural Adjustment Programme （SAP） and liberalization policy （1986-2005） that followed SAP The results indicated positive divergence between factual and counterfactual trends for palm kernel, cocoa, coffee and rubber but neuative for groundnut after SAP     

Optimal balanced growth in a general multi-sector endogenous growth model with constant returns

I will study a multi-sector endogenous growth model with general constant returns to scale technologies and demonstrate the existence, uniqueness and the saddle-path stability of the balanced growth equilibrium. I will first demonstrate the existence of a balanced growth equilibrium, by showing that the balanced growth rate associated with the balanced growth equilibrium is solely determined by solving a Frobenius root problem of the price equations derived from the Euler equations and the property of the nonsubstitution theorem. Then I will show the saddle-path stability of the balanced growth equilibrium without any capital intensity conditions, which is a generalized property proved in the two-sector endogenous growth models by de Guevara et al. (J Econ Dyn Control 21, 115–143, 1997), Bond et al. (J Econ Theory 68, 149–173 1996) and Mino (Int Eco Rev 37, 227–251 1996). The theorem clearly implies that the balanced growth equilibrium has a transition path in the neighborhood of the balanced growth equilibrium. The paper was presented at the conferences “Irregular Growth: Beyond Balanced Growth” held on June 19–21, 2003 in Paris and “Economic Growth and Distribution: On the Nature and Causes of the Wealth of Nations” held on June 16–18, 2004 in Lucca, Italy. From the discussion with Alain Venditti at CNRS-GREQAM, Gerhard Sorger at University of Vienna and the conference participants, I have been benefited much by writing this paper. Especially Alain Venditte had given me a chance to take a look at his unpublished paper titled ” Indeterminacy and the Role of Factor Substitutability” jointly written with Kazuo Nishimura at Kyoto University and published in Macroeconomic Dynamics, Vol. 8. The author also would like to thank an anonymous referee for useful suggestions.     

Health and infrastructure in a model of endogenous growth

This paper studies the optimal allocation of government spending between infrastructure and health (which affects labor productivity as well as household utility) in an endogenous growth framework. A key feature of the model is that infrastructure affects not only the production of goods but also the supply of health services. The rate of time preference is also endogenously related to health outcomes. The first part considers the case where health enters as a flow in production and utility, whereas the second focuses on a “stock” approach. Growth- and welfare-maximizing rules for income taxation and the allocation of public spending are derived.     

Optimal fiscal policy in an endogenous growth model with public capital: a note

This note presents an investigation of the optimal tax rule in endogenous growth models with public capital. It is presumed that the government levies only an income tax in addition to financing public investment. Furthermore, a household’s saving is deducted from the income tax. We find the optimal tax rule whereby the social optimum is attainable. The manner by which a government imposes a tax on income and administers tax deductions is important for attaining a socially optimal situation.      

The Ramsey model with AK technology and a bounded population growth rate

This paper generalizes the Ramsey AK model by allowing the population growth rate to be variable over time subject only to be between prescribed upper and lower limits. Contrary to the standard AK setting, convergence can occur. Moreover, monotonicity as well as an asymptotic balanced growth path equilibrium may arise in the model.     

Public debt and welfare in a quantitative Schumpeterian growth model with incomplete markets

This paper quantifies the welfare effects of counterfactual public debt policies using an endogenous growth model with incomplete markets. The economy features public debt, Schumpeterian growth, infinitely-lived agents, uninsurable income risk, and discount factor heterogeneity. Two versions of the model are specified, one with households holding equity in the group of innovating firms. The model is calibrated to the U.S. economy to match the degree of wealth inequality, the share of R&D expenditure in GDP, the firms’ exit rate, the average growth rate, and other standard long-run targets. When comparing balanced growth paths, I find large welfare gains in equilibria characterized by governments accumulating public wealth. The result is robust to the mechanism used to generate a highly concentrated wealth (i.e., preference heterogeneity or “superstar” income shocks). Welfare effects decompositions show that level effects and growth effects reinforce each other. The responses of both the intermediate goods and their market conditions are key in explaining the large level effects. The version of the model without equity is computationally easier to solve, allowing to consider transitional dynamics. Taking into account the dynamic adjustment to the new long-run equilibrium, I show that the transitional welfare costs are not large enough to change the sign of the welfare effects stemming from a change in public debt. I find that eliminating public debt would lead to a 0.8% increase in welfare, while moving to a debt/GDP ratio of 100% would entail a welfare loss of 0.5%. A decomposition analysis shows that growth accounts for approximately 50% of the overall welfare effects.     

Effects of subsidies on growth and welfare in a quality-ladder model with elastic labor

This paper develops a quality-ladder growth model with elastic labor supply and distortionary taxes to analyze the effects of different subsidy instruments: subsidies to the production of final goods, subsidies to the purchase of intermediate goods, and subsidies to research and development (R&D). Moreover, the model is calibrated to the US data to compare the growth and welfare implications of these subsidies. The main results are as follows. First, we analytically show that an optimal coordination of all instruments attains the first-best outcome. Second, in the calibrated economy, we numerically find that for the use of a single instrument, R&D subsidy is less growth-enhancing and welfare-improving than the other subsidies, whereas for the use of a mix of two instruments, subsidizing the production of final goods and the purchase of intermediate goods is most effective in promoting growth but least effective in raising welfare.     

Business cycles in a two-sector model of endogenous growth

Summary. This paper analyzes the impact of cyclical volatility on long-term economic growth: does growth increase or decrease with increased cyclical volatility? We construct a stochastic two-sector model of endogenous growth to analyze this question in detail. We will show that economic growth is higher in the presence of business cycles, since people devote more time to learning activities in an uncertain economic environment. Human capital is a hedge against future income uncertainty. Hence, the rate of economic growth will be higher in a stochastic environment. Based on a calibration of the model, we find that economic growth increases by 0.46%-point as a result of observed business cycle variability. When account is taken of the interaction between the model's general equilibrium and the cycle, welfare gains (measured in units of a permanent percentage increase in consumption) from eliminating business cycle volatility are approximately 1.87%. Received: January 25, 2000; revised version: November 3, 2000     

International investment in a model of stochastic growth and development traps

This paper investigates the effects of financial integration in a stochastic endogenous growth model of two economies in which heterogeneous agents face fixed costs of productive investment. The removal of investment barriers may enable a poor country to escape from a state of low and unstable growth by leading to large capital inflows and by raising the number of agents who invest in productive capital. However, since the two economies are characterized by increasing returns to capital and since financial integration may lower the saving rate, it is also possible that both countries' growth prospects worsen.     

Culture and human capital in a two-sector endogenous growth model

Recent literature in the field of cultural economics highlights a possible inversion in the usual causality relation (from economic growth to culture) and points out that culture may represent an important driver of economic growth. By viewing culture in line with Throsby’s (2001) definition of cultural capital (i.e., an asset of tangible and intangible cultural expressions), in this article we analyze one possible channel through which culture may positively affect economic growth, namely the existence of a relationship of complementarity between cultural and human capital investments. Using a two-sector endogenous growth model, we find that in the long run a higher growth rate of real per-capita income can be attained the more cultural and human capital investments are complementary for each other in the process leading to agents’ skill acquisition. We also analyze the conditions under which an increase of the cultural capital share in total GDP can be conducive to a rise of real per-capita income.     

Dynamics of a two-sector endogenous growth model with intersectoral knowledge spillovers

In a two-sector endogenous growth model with learning by doing and intersectoral knowledge spillovers, we associate local dynamics with the slope of the excess demand curve for a consumption good. Factor intensity determines the income effect, which governs dynamics. We are grateful to an anonymous referee for his/her helpful comments and suggestions.     

Population growth and technological change in a global warming model

Global warming (GW) is now recognized as a significant threat to sustainable development on an international scale. After providing some introductory background material, we introduce a benchmark dynamic game within which to study the GW problem. The model allows for population growth and is subsequently generalized to allow for changes in technology. In each case, a benchmark “Business as Usual” (BAU) equilibrium is analyzed and contrasted with the efficient solution. Furthermore, a complete characterization is provided in the benchmark model of the entire subgame perfect equilibrium value correspondence.JEL Classification Q54, D99, O12This paper builds on the Woytinsky Lecture delivered by Roy Radner at the University of Michigan, March 11, 1998. We would like to thank Graciela Chichilnisky, Arnulf Grubler, Geoffrey Heal, Leonid Hurwicz, Jill Jaeger, Peter de Janosi, Paul Kleindorfer, Giuseppe Lopomo, Thomas Schelling, Tapan Mitra, and Michael Toman for helpful discussions and references, and Andrew King, Charlotte V. Kuh, and Frank Sinden for comments on an earlier draft. In the case of the present enterprise, much of whose scope lies outside of our previous expertise, it is even more important than usual to emphasize that we are responsible for all errors.     

Trade integration and regional income disparities in a growth model with the service sector and footloose capital

This paper proposes a North–South growth model of endogenous industry location which is consistent with recent empirical work showing that regional income disparities have increased in many countries with the process of trade integration. The model incorporates a service sector that benefits from intersectoral knowledge spillovers from the manufacturing sector. We find that, when these spillovers are local, trade integration leads to an increase in interregional real income inequality.     

The supply of qualified nurses: a classical model of labour supply

The need to ensure adequate numbers of nurses is a key requirement of the current modernization of the UK NHS. However, it is unclear how effective wages are as an instrument to maintain or increase the nursing workforce, both in terms of absolute numbers and in the number of whole time equivalents. This study sets out to estimate a classical model of labour supply for British qualified married or cohabiting nurses and midwives, looking at both the participation decision and the hours of work supplied. Data are from the Quarterly Labour Force Survey over the years 1999–2000. Participation and hours of work are found to be inelastic with respect to own wage. These results suggest that increasing the wage would only have a moderate effect on labour supply. Interestingly, there is no significant statistical difference between having a child of nursery age (3–4) and having a child of school age (5–15) on participation and hours supplied. This suggests that recent policy initiatives to increase female labour force participation, through the provision of free nursery places, has been successful. Preliminary analysis of a split private and public sector sample suggests that hours supplied are completely inelastic with respect to wages in the public sector.     

Barriers to knowledge spillovers and regional convergence in an evolutionary model

This paper will present a multi-region/multi-country model in which inter-regional knowledge spillovers determine the growth of regions. Key parameters in the model are the learning capability of a region and the rate of knowledge generation (R&D). The intensity of spillovers depends on geographical distance between regions. The model is investigated by means of simulation techniques. What results is a core-periphery situation, the exact form of which depends on the assumed spatial structure. The impact of economic integration is investigated by introducing barriers-to-knowledge-spillovers in the model in the form of borders between countries. Contrary to the popular belief and some economic theories, we find that removing such spillover barriers may result in larger disparity of income levels between regions.