Tax-spending policies and economic growth: Theoretical predictions and evidence from the OECD

We present an endogenous growth model to study the growth effects of the composition of government expenditure and the associated tax burden. When we use data from a set of 23 OECD countries during 1970–2000, our econometric results support the predictions of the theory. The share of productive government expenditure is associated with higher growth, and this result is more robust when we use effective average tax rates and statutory tax rates as measures of the tax burden. With respect to the tax burden, different tax rates have different growth effects.     

The Influence of Socioeconomic Factors on Economic Growth

The main goal of this paper is to analyse the relationship between social capital and economic growth taking into account the role of fiscal policy from theoretical and empirical points of view. To achieve this goal, “Human Capital and Public Capital Effects on Economic Growth” is focused on the effects of two traditional factors: human capital and public capital effects on economic growth. “Social Capital Effects on Economic Growth” considers qualitative variables introducing some socioeconomic effects on economic growth process analysis. In this case, social capital the main variable will be considered. “Empirical Analysis,” an empirical analysis is developed considering the case of European countries prior to the EU enlargement. Finally, in Conclusions,” the main conclusions will be resumed.      

Government size, composition, volatility and economic growth

This paper analyses the effects in terms of size and volatility of government revenue and spending on growth in OECD and EU countries. The results of the paper suggest that both variables are detrimental to growth. In particular, looking more closely at the effect of each component of government revenue and spending, the results point out that i) indirect taxes (size and volatility); ii) social contributions (size and volatility); iii) government consumption (size and volatility); iv) subsidies (size); and v) government investment (volatility) have a sizeable, negative and statistically significant effect on growth.     

The welfare implications of resource allocation policies under uncertainty: The case of public education spending

In this paper, we examine whether policy interventions, aimed at improving resource allocation, also have important stabilization effects over the business cycle. To this end, we employ a dynamic stochastic general equilibrium model in which public education expenditures, financed by distorting taxes, enhance the productivity of private education choices. We then calculate the welfare implications of competing operating targets using a state-contingent instrument rule for public education spending. Our main findings are: (i) there can be important cyclical effects of different resource allocation policies depending on the operating target used and the degree of macroeconomic uncertainty; (ii) it is important to use an operating target which is as close as possible to the heart of the market imperfection that justifies policy action; (iii) policy action should not be monotonic in the degree of macroeconomic uncertainty.     

How elections affect fiscal policy and growth: revisiting the mechanism

This paper reconsiders the popular result that the lower is the probability of reelection, the greater is the incentive of incumbent politicians to choose short-sighted, inefficient policies. The set-up is a general equilibrium model of economic growth, in which fiscal policy is endogenously chosen under electoral uncertainty. Political parties can value possible economic benefits differently depending on whether they are in or out of power, and—by contrast with the literature—the relevant preference coefficient is a choice variable rather than an exogenous taste parameter. The main result is that, when political parties choose both economic policy instruments and preference coefficients, the fundamental reason for short-sighted policy is the extra rents from being in power per se.     

The public sector and convergence with spatial interdependence: empirical evidence from Spain

We propose a framework to analyse convergence between regions, incorporating the public sector and technological knowledge spillovers in the context of a Neoclassical Growth Model. Second, we apply novel estimation methods pertaining to the spatial econometrics literature introducing a spatial Durbin panel data model based on instrumental variables and maximum-likelihood estimation. Our model makes it possible to analyse, in terms of convergence, the results obtained in Spanish regions with the policies implemented during the period 1980–2011. The results support the idea that education and fiscal policies have a positive effect on regional development and cohesion. Therefore, we can conclude that it is possible to obtain better results for regional convergence with higher rates of public investment in education and tax revenues. We also obtain interesting results that confirm the existence of spillover effects in economic growth and public policies, identifying their magnitude and significance.     

Optimal contest design: volume and timing of rent seeking in contests

This paper undertakes a comparative analysis of rent-seeking contests in terms of the amount and the timing of effort they elicit from the participants. The optimal contest structure—the one that maximizes the discounted sum of efforts—is found to hinge on the degree of impatience of the contest organizers, the more patient of whom prefer longer contests consisting of pairwise matches among the contestants. Heterogeneity of the contestants' quality also turns out to play an important role in the comparison.     

On the size of the public sector

The main goal of this paper is to detect the mechanisms that should rationally stimulate the decision making-policies of the European Central Bank (ECB). This is carried out under the framework of theoretical principles of interest rate rules. Firstly, we deduce a set of logically advisable guidelines for the strategy actually developed by this central bank. Then we contrast a wide set of hypotheses with reference to those variables the ECB takes into account on deciding its monetary policy, with a flexible treatment regarding the number of months of advance or delay in the explanatory variables. The results lead us to the conclusion that the ECB, besides adopting a smooth strategy, especially bears in mind the expected core inflation rate, with a reaction coefficient adjusted to that initially proposed by Taylor. The economic growth rate, though it has a significant positive coefficient, matters relatively little and is backward looking. Finally, we evaluate up to what point the behaviour of the ECB is assimilative to an inflation targeting framework, solving this question affirmatively.     

The effects of economic policy uncertainty on China’s economy: evidence from time-varying parameter FAVAR

ABSTRACT

This article explores the effects of China’s economic policy uncertainty (EPU) on its fiscal policy, monetary policy and a wide range of macro-economic variables using a time-varying parameter FAVAR model. Based on monthly data from 07/2003 to 08/2017, the time-varying structure of the model allows us to capture the time-varying characteristics of the macro-economic variables and which channel is relevant. Empirical results reveal that the reaction of monetary and fiscal policies to EPU is highly asymmetric across macro-economic circumstances. Loose monetary and fiscal policies are adopted in response to EPU shocks during the financial crisis, while policies are moderately tightened after the crisis. The China Interbank Offered Rate (Chibor) responds more sensitively and severely than M2 to EPU shocks. Additionally, EPU shocks have a significant and negative impact on economic growth, consumption, exchange rates, bonds and the stock market, but showing a positive impact on credit, real estate and fixed asset investment (which might be due to China’s special economic market environment and the high investment return). The results indicate that EPU shocks significantly affect macroeconomic fundamentals through precautionary savings and financial market channels but lose their effectiveness through a ‘real options’ effect.     

Budget balances in OECD countries: what makes them change?

Fiscal balances have deteriorated quickly in recent years, bringing back to the foreground the question what factors explain such sharp changes. This paper takes a broad perspective at the issue regarding countries included, the range of potential explanatory variables, and the time-span covered. The empirical analysis shows that changes in budget balances are affected by debt growth, macroeconomic developments and political factors. In particular, we find that the run-up to EMU induced additional consolidation in Europe and that budget balances deteriorate markedly in election years. Asset prices also affect budgets, but the impact remains limited in normal times.      

Estimating changes in real size of the public sector

A new deflator for total government expenditure can now be derived from major components of the total. Applied to government spending in the US over the past quarter-century , results show near-stability in real size of the public sector.     

Cooperation by way of support in a rent seeking contest for a public good

This paper analyzes the efforts made to influence a decision that can have two outcomes. First, the agents on the same side designate an agent to play the contest for them. The inactive agents can then decide to support this active agent, i.e. pay a percentage of his effort. It is optimal to designate either the agent with the lowest stake (who will receive support from everyone else) or the agent with the highest stake (who will not receive support) as the active agent. We find that the side with the higher aggregate stake may have the lower success probability.     

Fiscal policy,rent seeking,and growth under electoral uncertainty: theory and evidence from the OECD

Abstract. We construct a general equilibrium model of economic growth and optimally chosen fiscal policy, in which individuals compete with each other for a share of government spending and two political parties alternate in power according to exogenous electoral uncertainty. The main prediction is that uncertainty about remaining in power results in increased fiscal spending, which in turn distorts incentives by pushing individuals away from productive work to rent‐seeking activities; then, distorted incentives hurt growth. This scenario receives empirical support in a dataset of 25 OECD countries over the period 1982–96. In particular, uncertainty about remaining in power leads to larger government shares in GDP, which in turn exert an adverse effect on the ICRG index measuring incentives and this is bad for growth.     

The cyclical behaviour of fiscal policy: evidence from the OECD

This paper addresses the topic of cyclicality in fiscal policy. In particular, we show that the level of cyclicality varies across spending categories and across OECD countries. In line with leading theories of fiscal cyclicality, we show that countries with volatile output and dispersed political power are the most likely to run procyclical fiscal policies. Wage government consumption is highlighted as the most important channel by which these variables affect fiscal cyclicality.     

Sustainability of Austrian public debt: a political economy perspective

Sustainability of Austrian public debt is investigated in the context of political objectives such as stabilizing the business cycle, increasing chances for being re-elected and implementing the ideologies of political parties. Several tests indicate that Austrian fiscal policies were sustainable in the period 1960–1974, while from 1975 on, public debt grew much more rapidly. The development of public debt in Austria seems to be driven not primarily by ideology, but by structural causes and a shift in the budgetary policy paradigm. We find some empirical evidence that governments in Austria dominated by one party run higher deficits than coalition governments. There are no indications of a political business cycle.     

转移支付均等化条件分析——基于转移支付与地方经济增长的关系

文章运用近16年的转移支付数据验证了龚六堂2000年的观点,即中央政府对地方政府的转移支付率与地方经济增长率之间是"倒U型"的关系。并在此基础上进一步推导出地方经济增长和中央政府对地方政府的转移支付之间也存在着这样"倒U"关系。用这种关系解释两个问题:第一,转移支付对地方经济增长有部分正的刺激作用,无论是富裕地区还是贫穷地区,中央政府都应该对其地方政府给予转移支付,同时转移支付也不是越多越好,也应该有个量的限制,当地方政府的收益足够大时,转移支付对经济增长的刺激就不再那么明显,反而会抑制地方经济增长;第二,从新的角度分析转移支付均等化实现的条件,即富裕地区较贫穷地区较早的进入"倒U"曲线的边际收益递减阶段时,才可能实现均等化。     

Monetary and fiscal policy interactions in the EMU when cyclical conditions are uncertain

This paper examines economic policy interactions in the Economic and Monetary Union when the assessment of cyclical conditions in real time is surrounded by uncertainty. On the basis of a simple stylised model it shows that with a Nash-type of interaction different views about the output gap on the side of the policy players—the Council of the European Union, the European Commission and the European Central Bank—can give rise to excessive activism with policy players pushing economic variables into opposite directions. It argues that the costs of such policy conflicts can be reduced by agreeing on a common assessment of the cycle, by constraining policy variables, and/or by increasing the weight of fiscally conservative institutions. An alternative option to sidestep policy conflicts ensuing from diverging views of the cycle is to take policy decisions sequentially, as is the case in a Stackelberg-type of interaction. The paper shows that for a given misperception of the cycle, the impact on the policy instruments and on output and inflation are generally smaller in the Stackelberg equilibrium as compared to a Nash outcome. Alternative allocations of roles—that is leader versus follower—are discussed and assessed.

Are government transfers harmful to economic growth? A meta-analysis

A common perception is that government transfers are harmful to economic growth. However, existing empirical evidence on this point is mixed. Potential reasons for these conflicting results include differences in the level of economic development of the countries studied, different estimation methods and different measures of government transfers. By conducting a meta-analysis of 149 estimates reported in 23 studies, we sought to understand if – and if so, to what extent – government transfers are harmful to economic growth, as well as how important the abovementioned reasons are in explaining different findings in the literature. We found that government transfers are more detrimental to economic growth in developed countries compared to less-developed countries because such transfers can have a non-monotonic effect on growth. When government transfers are substantial, as they are in developed countries, they tend to reduce growth. We also found that the growth effects of government transfers are sensitive to the measurement of the transfers, i.e., studies that use unemployment benefits instead of social security tend to report a stronger negative growth effect.     

On the optimality of social status seeking

We present an endogenous growth model in which households display their social status by holding not only capital but also bonds. According to conventional wisdom, the quest for social status provides an incentive for individuals to accumulate wealth, which stimulates economic growth and elevates it to a socially optimal level. Instead, we show that portfolio allocation is crucial to the growth-enhancing effect of the quest for social status. If households exhibit their social status by accumulating physical capital and holding government bonds, the quest for social status may not increase economic growth. As a result, social status seeking cannot achieve the social optimum. Calibrating our model to data, we find that if government bonds constitute part of the wealth for households’ quest for social status, the quest for social status decreases economic growth.     

财政支出及其结构的经济效应:国外研究评述

作为宏观经济调控的重要手段,财政支出及其结构的经济效应历来备受瞩目。近年来,该领域的研究文献众多,主要集中在财政支出及其结构对经济增长、居民消费、私人投资和收入分配的影响。本文回顾了从理论分析到实证研究的最新文献,发现上述四个方面的研究结论分歧甚至冲突明显,理论基础、研究方法和数据来源等方面的差异是造成结论分歧的主要原因。今后的财政支出及其结构经济效应研究应该更加关注作用机制、经济环境差异、非线性效应、微观视角和政治因素。