Investment credit and child labour

It is generally assumed that credit has a positive effect on children's schooling among poor households. This article shows that need not be the case when households obtain credit for investment purposes. In fact, investment loans may not have any effect on the likelihood of schooling for children who work in their family business. Our estimates confirm that this is the case; credit used to finance investments has no effect on the odds of schooling for employed children. This may be because investment loans increase children's labour productivity, which in turn increases the opportunity cost of schooling. The results of this study suggest that improving access to credit may not, by itself, constitute a solution to the problem of child labour in developing countries.     

Natural resource extraction and civil conflict

Based on evidence linking natural resources to civil conflict, this paper studies two armed groups fighting to control a resource and possibly a second prize. Labor is used in the agricultural, resource extraction and conflict sectors, and the groups also buy a capital input to conflict subject to the constraint that capital spending cannot exceed resource earnings. I find that exogenous shocks can have different effects on conflict intensity depending on whether the credit constraint binds. In particular, international policies to ban natural resource exports from conflict zones (e.g. ‘blood diamonds’), raise agricultural productivity or limit the import of weapons will limit conflict intensity if the credit constraint binds. However, if the credit constraint does not bind, then the first two policies promote conflict, and so could even the third policy. The results therefore suggest some caution in international policymaking.     

家庭借贷约束、公共教育支出与社会流动性

人力资本投资是增强社会流动性的重要手段,然而借贷约束使得底层家庭无力对子女进行最优的人力资本投资;与此同时,富裕家庭则不受借贷约束的影响,总体结果是社会流动性减弱。利用中国健康与养老追踪调查和全国综合社会调查数据,本文发现,借贷约束确实提高了居民收入和教育的代际传递弹性,降低了社会流动性。在匹配政府公共教育支出数据后发现,公共教育支出可以缓解家庭层面人力资本投资的不足,提高教育水平的代际流动性。     

LAND PRICE,COLLATERAL AND ECONOMIC GROWTH*

This paper extends Kiyotaki and Moore's (1997 ) to an endogenous growth model and investigates the dynamic properties of a growing economy with binding credit constraint when land is used not only as an input of production but also as collateral. There exists a balanced growth path in an economy with binding credit constraint. In response to a once and for all productivity shock, the developed model shows the propagation mechanism among output, capital, bank credit and the land price in terms of the growth rate. The model's tractability allows us to derive interesting qualitative and quantitative findings on business cycles.     

Social networks near and far: The role of bonding and bridging social capital for assets of the rural poor

With formal insurance and credit markets either absent or inaccessible to rural agents in most poor rural economies, social networks play a highly important role in mitigating the risks that agricultural households face. These kinds of informal insurance schemes are presumed to be most effective in the face of idiosyncratic risk. However, social mechanisms also exist in developing countries that may reduce locally correlated risk such as the adverse economic effects of climatic conditions that affect multiple residents in a village. This paper analyzes the role of localized (bonding) and of spatially dispersed (bridging) social capital in mitigating the impact of idiosyncratic and of locally correlated shocks on farm households’ livestock endowments. Using dynamic panel generalized method of moments (GMM) system estimation with seven‐period panel dataset of over 400 households, we find that bonding social capital is able to protect households’ livestock assets against idiosyncratic shocks, but bridging social capital does not play a role in mitigating the impact of correlated shocks. The results hold up to multiple robustness checks. A test of different hypotheses about the nature of these assets’ trajectories rejects the asset poverty trap hypothesis, and instead finds that livestock asset dynamics are characterized by a single stable equilibrium.     

The role of infrastructure investment and factor productivity in international tax competition

In this paper we use data from 30 developed economies from 1999 to 2014 to analyse the importance of infrastructure investments and factor productivity for explaining international capital tax competition. Our results indicate the existence of intensive tax competition in effective average corporate taxation during this period. It is also suggested that non-tax variables of third countries affect a country's corporate tax policy. Countries whose direct competitors have better infrastructures or are more productive compensate with lower capital taxation. In this way, their infrastructure investment and productivity-enhancing policies are used as strategic substitutes for capital taxation. With regard to the characteristics of closest competitors, we find that corporate tax competition is fiercer among countries that are characterized by similar infrastructure investments and geographical proximity.     

Social Affiliation and the Demand for Health Services: Caste and Child Health in South India

This paper assesses the role of social affiliation, measured by caste, in shaping investments in child health. The special setting that we have chosen for the analysis - tea estates in the South Indian High Range - allows us to control nonparametrically for differences in income, access to health services, and patterns of morbidity across low caste and high caste households. In this controlled setting, low caste households spend more on their children's health than high caste households, reversing the pattern we would expect to find elsewhere in India. Moreover, health expenditures do not vary by gender within either caste group, in contrast once again with the male preference documented throughout the country. A simple explanation, based on differences in the returns to human capital across castes in the tea estates is proposed to explain these striking results.     

Should monetary policy lean against the wind? Simulations based on a DSGE model with an occasionally binding credit constraint

In this research paper, we extend the model constructed by Gambacorta and Signoretti (2014) by introducing an occasionally binding credit constraint based on a penalty function approach in line with Brzoza-Brzezina, Kolasa, and Makarski (2015) to study the performance of the Taylor rule augmented with asset prices. First, we compare the properties of the baseline model and its modified version. Then, we use both models to study the performance of the basic and extended Taylor rule. The performance of Taylor rules is examined under the optimisation of a central bank's loss function and the welfare maximisation of economic agents. The analysis delivers the following results. The model with an occasionally binding credit constraint has more favourable properties regarding the hump-shaped and asymmetric impulse responses compared to an eternally binding credit constraint model. The best rule regarding the lowest value of the central banks' loss function proves to be the rule augmented with asset prices. The optimal reactions are, however, shock- and model-dependent, and therefore, any rule-like behaviour does not seem to be appropriate. The welfare maximisation under the occasionally binding credit constraint model reveals that reacting to asset prices might not be welfare-improving for both types of economic agents – households and entrepreneurs. This result is in contradiction with the implications achieved under the eternally binding credit constraint model.     

A general equilibrium analysis of production subsidy in a Harris-Todaro developing economy: an application to India

Since 1950s India has advocated import substituting industrialization policies to promote its manufacturing sector. The end result was creation of a dual economy: highly favored manufacturing sector with high and rigid wages and neglected agricultural sector with low wages and poverty. Because of the higher wages in the manufacturing sector, the rural laborers migrate to the urban sector, a typical characteristic of the Harris-Todaro developing economy. Realizing this crisis, the Indian government recently initiated policies to boost agricultural production to curb the labor migration and improve the welfare of the rural population. In this study, we develop a computable general equilibrium (CGE) model for India by incorporating Harris-Todaro economic characteristics of unemployment, labor migration, farm dependant population, and labor-intensive agriculture. We use the model to analyze the effects of agricultural production subsidy policies on employment, factor price, output price, output levels, and welfare in agricultural and manufacturing sectors. Our findings show that agricultural production subsidy increases agricultural production, reduces unemployment, raises the wage rate in the agriculture sector, augments the consumption among the rural and urban households, and increases the rental rate for capital in agricultural sector.     

Start-up Capital, Microenterprises and Technical Efficiency in Mexico

Access to adequate start‐up capital has been identified as an important deterrent to microenteprise development and growth. Using firm level data from Mexico's National Survey of Microenterprises, we estimate a stochastic frontier production function with inefficiency effects related to the main sources of start‐up capital. Microenterprises utilizing bank loans, carryover business capital, moneylenders and credit from clients and suppliers are more technically efficient than those relying on family, friends and on own financial sources. Bank loans led to the highest degree of technical efficiency, indicating a well‐functioning screening process despite information asymmetries. Banks tend to offer the largest average loan size with the longest terms which are significant factors in allowing microentrepreneurs to overcome financing constraints.     

Endogenous money and shareholders' funds in the classical theory of banking

By its nature, bank money is endogenous, but its issuing is risky and presupposes the presence of banks' shareholders' funds. Shareholders' funds give banks the means of dealing with the difficulties involved in the process of money creation and which are inherent to the banking activity: convertibility constraint, credit and liquidity risks. Unlike the Richardian paradigm, Smith's ‘real bill theory’ and Thornton's ‘lender of last resort theory’ point out the functions of shareholder's funds. Therefore their monetary-banking approachs seem more complementary than contradictory. In other respects, the theory of endogenous money and credit introduces risks and capital in the analysis of exchange and lead to questioning the classical market theory constructed on the model of bartering     

Social security incentives,human capital investment and mobility of labor

Migration between countries with earnings-related and flat-rate pay-as-you-go social security systems may change human capital investments in both countries. The possibility of emigration boosts investments in human capital in the country with flat-rate benefits. Correspondingly, those expecting to migrate from the country with earnings-related benefits to a country with flat-rate benefits may reduce their investment in education. Allowing for migration may generate an intertemporal Pareto-improvement with cross-border transfers, and the contribution rates satisfying certain conditions. However, these conditions are not satisfied with those contribution rates that would arise if the governments maximize the welfare of their citizens without migration.     

Endogenous growth with a limited fossil fuel extraction capacity

Campbell (1980) and following authors have discussed a limited resource extraction capacity as an augmentation of the well‐known Hotelling model. We integrate a limited extraction capacity and related investments in the endogenous growth model of Tsur and Zemel (2005) to study its effect on economic development. The capacity constraint gives rise to three effects. On the one hand, higher energy costs and the reallocation of production towards capacity investments decrease production available for consumption, research and/or capital investments (energy costs and reallocation effect). On the other hand, research investments may increase, which boosts available production (research effect). Depending on the capital endowment and the strength of the effects, long‐run consumption may be boosted or depressed. In particular, the capacity constraint may render everlasting consumption growth non‐optimal in a resource‐rich economy. Furthermore, we find that capacity investments may be postponed to later points in time if the capital endowment is high.     

Community-based development and poverty alleviation: An evaluation of China's poor village investment program

We conduct the first systematic evaluation of the world's largest community-based development program—China's flagship poverty alleviation program began in 2001 which finances public investments in designated poor villages based on participatory village planning. We use matching methods and a panel household and village data set with national coverage to compare changes from 2001 to 2004 in designated poor villages that began plan investments and in designated poor villages that had yet to begin plan investments. We find that the program significantly increased both government- and village-financed investments. While the program did not increase the income or consumption of poorer households, it did increase the income and consumption of richer households by 6.1 to 9.2%. We also find suggestive evidence that governance matters in the distribution of program benefits. Relative gains were greater for richer households in villages with more educated leaders, and higher quality village committees delivered greater benefits to both richer and poorer households.     

Optimal mixed taxation,credit constraints,and the timing of income tax reporting

We study optimal income and commodity tax policy with credit‐constrained low‐income households. Workers receive an even flow of income during the tax year, but report their incomes and make tax payments (receive transfers) at the end of the year. They spend their disposable income on multiple commodities over the year. We show that differentiated subsidies on commodities can be optimal even if the Atkinson–Stiglitz Theorem conditions apply. When the optimal policy leaves low‐income households with binding credit constraints, it may be optimal to subsidize differentially the good that they consume in higher proportion. Uniform subsidies would also relax the credit constraint, but would be more costly to the government since they would equally benefit unconstrained households. Numerical examples suggest that commodity tax differentiation increases with basic needs and with the interest rate at which government borrows.     

Why don't banks lend to Egypt's private sector?

Bank credit to Egypt's private sector decreased over the last decade, despite a recapitalized banking system and high rates of economic growth. Recent macro-economic turmoil has reinforced the trend. This paper explains the decrease based on credit supply and demand considerations by 1) presenting stylized facts regarding the evolution of the banks' sources and fund use in 2005 to 2011, noting two different cycles of external capital flows, and 2) estimating private credit supply and demand equations using quarterly data from 1998 to 2011. The system of simultaneous equations is estimated both assuming continuous market clearing and allowing for transitory price rigidity entailing market disequilibrium. The main results are robust to the market clearing assumption. During the global financial crisis, a significant capital outflow stalled bank deposit growth, which in turn affected the private sector's credit supply. At the same time, the banking sector increased credit to the government. Both factors reduced the private sector's credit supply during the period under study. After the trough of the global crisis, capital flowed back into Egypt and deposit growth stopped being a drag on the supply side, but bank credit to the government continued to drive the decrease in the private sector's credit supply. Beginning in the final quarter of 2010, capital flows reversed in tandem with global capital markets, and in January 2011 the popular uprising that ousted President Hosni Mubarak added an Egypt-specific shock that accentuated the outflow. Lending capacity dragged again, accounting for 10% of the estimated fall in private credit. Credit to the government continued to drain resources, accounting for 70–80% of the estimated total decline. Reduced economic activity contributed around 15% of the total fall in credit. The relative importance of these factors contrasts with that of the preceding capital inflow period, when credit to the government accounted for 54% of the estimated fall, while demand factors accounted for a similar percentage.     

Financial development and the share of imported capital goods in developing countries: firm-level evidence

Firm-level estimations across a sample of seven developing countries suggest that a higher firm’s leverage – a proxy for credit constraints – reduces the share of imported capital goods in total capital expenditures. This result holds across different models such as a two-limit tobit and a fractional logit model. It is also confirmed after controlling for unobserved firm heterogeneity, state dependence or when using the share of property in total assets as an alternative credit constraint indicator. The results also indicate that the importance of credit constraints is significantly reduced in financially more developed countries.     

The optimal taxation of risky capital income: An elasticity rule

Should risky capital income be taxed like safe income or should tax rates be differentiated? The question is analyzed in a 2-assets model of portfolio choice. Flat tax rates are chosen in order to maximize the investor's expected utility from terminal wealth subject to an expected tax revenue constraint. If lump-sum taxes are not available, optimal tax rates are characterized by an elasticity rule: The relative change in the risk remuneration should be equal to the inverse of the product of two elasticities. One is the output elasticity of capital. The other is the demand elasticity for risky investments with respect to a revenue preserving tax variation.     

Credit constraint and human capital investment: an empirical analysis using Brazilian household budget survey

This article is a first step towards understanding the relationship between credit market imperfections and inequality of opportunity in skill formation. The main goal is to investigate the effects of the credit constraint on the optimal human capital decision, in terms of degree of schooling, taking into account the household preferences for education. Our starting point is a theoretical model of human capital investment decision with credit constraint. Following a previous model in the literature, we propose a reduced-form approach that estimates the relation between education decision and initial wealth in Brazil. Our empirical analysis is conducted using data from a Brazilian Household Budget Survey (Pesquisa de Orçamentos Familiares), for years 2002–2003 and 2008–2009. Our results point out that education decision is in fact credit constrained. The empirical results show a strong and highly significant effect of wealth on educational level of children, teenagers and adults, even controlling by education expenditures. But we find no evidence of credit constraint on high level education decision, like undergraduate and graduate levels.     

Monetary policy with heterogeneous agents and borrowing constraints

We show that the long-run neutrality of inflation on capital accumulation obtained in complete market models no longer holds when households face binding credit constraints. Borrowing-constrained households are not able to rebalance their financial portfolio when inflation varies, and thus adjust their money holdings differently compared to unconstrained households. This heterogeneity leads to a new precautionary savings motive, which implies that inflation increases capital accumulation. We quantify the importance of this new channel in an incomplete market model where the traditional redistributive effects of inflation are also introduced. We show that this model provides a quantitative rationale for the observed hump-shaped relationship between inflation and capital accumulation.