The conflict mitigating effects of trade in the India-Pakistan case

We examine whether greater inter-state trade, democracy and reduced military spending lower belligerence between India and Pakistan, beginning with a theoretical model covering the opportunity costs of conflict in terms of trade losses and security spending, as well as the costs of making concessions to rivals. Conflict between the two nations is best understood in a multivariate framework where variables such as economic performance, integration with rest of the world, bilateral trade, military expenditure, democracy orientation and population are simultaneously considered. Our empirical investigation based on time series econometrics from 1950 to 2005 suggests that reduced bilateral trade, greater military expenditure, less development expenditure, lower levels of democracy, lower growth rates and less general trade openness are all conflict enhancing. Globalization, or a greater openness to international trade with the rest of the world, is the most significant driver of a liberal peace, rather than a common democratic orientation.     

Military spending and entrepreneurship: Spatial effects of cross‐country spillovers

This paper uses a large cross‐country panel data sample to examine the effects of military spending on entrepreneurship. The other major contribution of this work lies in studying the spatial cross‐country influences of military spending on entrepreneurship. Placing the econometric model in the broader literature on the determinants of entrepreneurship, results show that while own military spending crowds out entrepreneurship in a country, bordering military spending promotes entrepreneurship. In other findings, we find interesting contrasts between the effects of government size and government quality, and between economic freedom and political freedom.     

Does military expenditure crowd out health-care spending? Cross-country empirics

The trade-off between military expenditure and public health spending has remained an unsettled empirical issue. This paper investigates whether military expenditure has crowded out public health spending in 116 countries (including a subsample of 87 non-OECD countries) over the period 2000–2017. Through our system generalized methods of moments (GMM) estimations, we find that military expenditure, whether it is measured on a per-capita basis or as a proportion of total government expenditure, has a positive impact on the demand for health care. Nonetheless, we find a significant crowding-out effect of military expenditure on domestic government health spending by taking into account government fiscal capacity. The evidence we present supports the long-standing view that military expenditure has a particular ability to compete government financial resources away from publicly funded health spending. By interacting the military expenditure variable with income per capita, we find that an increase in income per capita has neutralized the crowding-out effect of military expenditure on domestic government health spending – less well-off countries stand to suffer most, and wealthy ones stand to suffer least, from the crowding-out effect. The crowding-out effect is statistically more specific to middle- and low-income countries in our samples.

     

Military expenditure in post-conflict societies

Post-conflict situations face a high risk of reversion to conflict. We investigate the effect of military expenditure by the government during the first decade post-conflict on the risk of reversion. We contrast two theories as to the likely effects. In one, military spending deters conflict by reducing the prospects of rebel success. In the other it acts as a signal to the rebels of government intentions. In the signalling model, low military spending signals that the government intends to adhere to the terms of the peace settlement and so reduces the risk of renewed rebellion. We investigate the effects of post-conflict military spending on the risk of conflict, using our existing models of military expenditure and of conflict risk. We find that, consistent with the signalling model, high military spending post-conflict significantly increases the risk of renewed conflict. This effect of military spending is distinctive to post-conflict period, and becomes progressively more pronounced over the decade. Received: April 2004, Accepted: December 2004, JEL Classification: H56, F35, O10     

Military versus non-military government spending and the shadow economy

Using recent cross-national data, this research examines the determinants of the shadow economy, focusing on the relative effects of military and non-military government spending. Results show that, other things being the same, nations with larger military spending have smaller shadow economies, while the effect of non-military government spending is statistically insignificant. These findings stand up to various robustness checks.     

Asymmetry in the effects of us government spending shocks: evidence and implications

Using quarterly data for the United States, the evidence differentiates the effects of expansionary and contractionary shocks to government spending around an anticipated steady-state trend over time. While interest rates increase in the face of expansionary government spending shocks, there is no evidence of a reduction in the face of contractionary shocks. Consequently, the increased government spending crowds out private investment. Moreover, there is evidence of a reduction in private consumption as agents anticipate a future increase in taxes to finance the increased government spending. As a result, output growth and price inflation are decreasing despite expansionary government spending shocks, on average, over time. In view of this evidence, public finance considerations ought to dominate attempts to stimulate demand using government spending near full-equilibrium capacity utilization in the economy. In contrast, contractionary government spending shocks are not offset by an increase in private spending. Hence, demand contraction is pronounced, slowing output growth and price inflation in the face of a reduction in government spending. The implication is that concerns over the pronounced contractionary effects of a reduction in government spending ought to dominate public finance considerations near full-equilibrium.     

DOES GOVERNMENT SPENDING AFFECT INCOME INEQUALITY? A META-REGRESSION ANALYSIS

In this paper findings of a meta-regression analysis are presented exploring the effects of government spending on income inequality, with a particular focus on low- and middle-income countries. We identify a total of 84 separate studies containing over 900 estimates of the effect of one or more measures of spending on one or more measures of income inequality. The results show some evidence of a moderate negative relationship between government spending and income inequality, which is strongest for social welfare and other social spending, and when using the Gini coefficient or the top income share as the measure of inequality. However, both the size and direction of the estimated relationship between government spending and income inequality is affected by a range of other factors, including the control variables and estimation method used. We also find evidence of publication bias, in that negative estimates of the relationship appear to be under-reported in the literature.     

Decomposing real and deflator-based government growth: an application to the American states

In recent years the question of how the size of government should be measured has been an unresolved issue in the research program on government growth. Employing the simple ratio of government spending to total economic output in their measures, most scholars have failed to recognize the different inflation rates which characterize the public and private sectors, as well as the fact that observed government growth may be attributable both to the effects of differential deflators and to increases in the scope of government activity. In this paper I present a simple geometric formulation for decomposing government growth into real growth and deflator-based components. Although the utility of this method is illustrated using data from two American states (New York and Florida), the technique has broad applicability for decomposing government growth into real and deflator components for a wide range of political systems for which data are available.     

政府支出对居民消费的影响——对李嘉图等价之谜的中国经验分析

基于消费跨期最优化框架,政府支出对居民消费的影响主要取决于消费者相对风险规避系数及私人消费支出与政府支出之间的相关系数。对中国数据的分析表明：短期内,李嘉图等价不成立,政府支出与居民消费呈互补关系,即政府支出增加将导致居民消费增加,积极的财政政策在短期内是有效的;长期内,政府支出将完全挤占居民消费支出,因而支出政策不宜用于实现政府的长期经济目标。     

Voluntary contributions and local public goods in a federation

This paper considers nonneutral effects of government spending in a federation of multiple jurisdictions. Both government spending and private donations finance local public goods, redistributive programs, that provide transfers for the poor. In the standard model, government spending has no effect on the public goods, as donors reduce their donations one for one in response to an increase in government spending. In a federation, donors of a jurisdiction donate, through federal charities, to help the poor in the jurisdiction and the poor in other jurisdictions as well. Jurisdictions are thus linked through donations. Such linkage influences donors' behavior beyond the traditional crowding-out effect. As a result, government spending has nonneutral effects on the level of public goods.     

Government Consumption and Industrial Productivity: Scale and Compositional Effects

Within a production function framework in which government spending produces public goods which enter firms production functions, empirical tests using time series data spanning eleven countries and thirty industries find both the scale and the composition of government consumption spending to affect the level and the rate of growth of total factor productivity at the industry level.Jel Classification: H50, D24     

State and local fiscal policy and growth at the border

The paper studies the connection between state and local fiscal policy, as measured by the share of government spending and revenues in personal income, and the economic activity of counties that share a state border. I construct a panel of pairs of US counties that share a state border from the 1970s to 2012. Economic activity is measured by county employment, wages and business establishments. The state and local government spending and revenue shares are aggregates for the states on the respective sides of the border. I estimate distributed lag regressions of changes in economic activity on changes in state and local government budgets in two ways. The first (double difference) utilizes change in the difference between border counties. This suggests a quite modest relocation of economic activity away from states with fiscal expansion. I then look at activity on each side of the border separately and find more substantial and consistently negative effects of fiscal expansion on both sides of the border. A border county shares the negative consequences for its neighbor of growth in the size of that neighbor's state and local governments. This negative fiscal externality is roughly half the size of the direct negative effects from similar own-state spending increases, and the sum of the two is substantial economically.     

Local fiscal multipliers and spillover effects: Evidence from Philippine regions

Fiscal policy in developed countries has been a rich topic since the Great Recession. However, research has remained limited for developing countries despite their similar use of fiscal policy and concerns about the efficiency of public spending. To help address this research gap, this paper provides a case study of multiplier effects of local government spending in regions in the Philippines as well as spillover effects of local government spending across regions. An instrumental variable based on the country’s intergovernmental transfer system is used to identify regional public spending in panel regressions. The local fiscal multiplier is estimated to be above one, where a 1-peso rise in spending by local government units in a region corresponds to a 1.2-peso rise in regional output. Multiplier effects are highest for capital expenditures and appear to be primarily driven by the services sector. Spillover effects are comparatively large, at around 1.8–2.0, highlighting the important role of domestic trade when stimulating regional economic activity.     

GOVERNMENT SIZE AND GROWTH: A SURVEY AND INTERPRETATION OF THE EVIDENCE

Abstract The literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings. This conflict is largely explained by variations in definitions and the countries studied. An alternative approach – of limiting the focus to studies of the relationship in rich countries, measuring government size as total taxes or total expenditure relative to GDP and relying on panel data estimations with variation over time – reveals a more consistent picture. The most recent studies find a significant negative correlation: an increase in government size by 10 percentage points is associated with a 0.5% to 1% lower annual growth rate. We discuss efforts to make sense of this correlation, and note several pitfalls involved in giving it a causal interpretation. Against this background, we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth. One hypothesis is that countries with higher social trust levels are able to develop larger government sectors without harming the economy. Another explanation is that countries with large governments compensate for high taxes and spending by implementing market‐friendly policies in other areas. Both explanations are supported by ongoing research.     

Derivatives market and economic growth nexus: Policy implications for emerging markets

The derivatives market plays a crucial role in an economy. However, its link to economic growth and macroeconomic factors seem to be insufficiently covered in academic research despite the publication of many empirical studies on the causality of finance and growth. Recently, many emerging markets, such as Vietnam, have decided to establish a derivatives markets for risk management to ensure stability in the economy. This paper investigates the dynamic relationship among these key variables using up-to-date panel data on 17 countries, for which required data are available until 2017. This study yields various findings. First, bidirectional Granger causality between derivatives markets and economic growth exists internationally. Second, using panel vector autoregression, impulse-response functions, variance decomposition techniques as well as panel econometrics estimations, we find that trade openness and government spending have more effects on the derivatives market than economic growth and inflation. Third, we document that the derivatives market has a more integrated direct relationship with economic growth and macroeconomic factors in high-income countries than their upper-middle-income counterparts. These new findings are essential for consideration by policy makers in emerging markets in relation to the development of their derivatives markets.     

Time horizons matter: the hazard rate of coalition governments and the size of government

This study examines how coalition governments affect the size of government, measured by total central government expenditure as a share of GDP. Existing studies suggest that the presence of multiple political parties within ruling coalitions generate common pool resource problems or bargaining inefficiencies which, in turn, leads to more government spending when coalition governments are in office. We demonstrate that coalition governments have shorter time horizons than single party governments and use that finding to motivate a simple formal model. The model shows that coalition governments have greater incentives to increase government spending because of a lower discount factor in office. Results from empirical models estimated on a global sample of 111 democracies between 1975 and 2007 provide strong statistical support for the aforementioned theoretical prediction. The empirical results remain robust when we control for alternative explanations, employ different estimation techniques, and use different measures of government spending.     

Demographic shift, relative costs and the allocation of local public consumption in Norway

Local government responses to shifting demand and supply conditions are investigated. The desired allocation of local public consumption is determined in a voter group decision model where different age groups compete for services within an exogenous budget constraint. The model is implemented in an AIDS demand system built into a partial adjustment framework. The estimates indicate that the dramatic shift in the age composition of the population from the young to the elderly during the period studied has led to higher educational spending per pupil and less health care services per elderly. Age groups in decline are able to resist reallocations and gain in terms of spending per head.     

Looking across borders: A test of spatial policy interdependence using local government efficiency ratings

Spatial patterns in (local) government taxation and spending decisions have received a lot of attention. Still, the focus on taxation or expenditure levels in previous studies may be incomplete. Indeed, (rational) individuals are likely to consider the level of spending on (or taxation for) public goods provision simultaneously with how much public goods they actually receive—thus assessing the ‘price/quantity’ of government policies. Therefore, the present paper argues that incumbents may want their ‘price/quantity’ ratio to be close to that in neighbouring regions. Analysing Flemish local governments' efficiency ratings for the year 2000 (which relate total spending to the quantity of locally provided public goods), we confirm the existence of neighbourhood effects in local government policies.     

Looking across borders: A test of spatial policy interdependence using local government efficiency ratings

Spatial patterns in (local) government taxation and spending decisions have received a lot of attention. Still, the focus on taxation or expenditure levels in previous studies may be incomplete. Indeed, (rational) individuals are likely to consider the level of spending on (or taxation for) public goods provision simultaneously with how much public goods they actually receive—thus assessing the ‘price/quantity’ of government policies. Therefore, the present paper argues that incumbents may want their ‘price/quantity’ ratio to be close to that in neighbouring regions. Analysing Flemish local governments' efficiency ratings for the year 2000 (which relate total spending to the quantity of locally provided public goods), we confirm the existence of neighbourhood effects in local government policies.     

Sources of labour productivity: a panel investigation of the role of military expenditure

The objective of this paper is to examine the effect of military expenditure on productivity performance in 70 countries, over the period 1989–2011. We employ the labour productivity as a measure of productivity, while the military burden is initially utilized as an indicator of the level of military expenditure within the framework of a transcendental production function. Applying the system GMM method, it is observed that defence expenditure exerts a negative and statistically significant effect on labour productivity. The negative impact of military expenditure still holds, when an alternative measure of military spending is introduced into the model. The main policy implication of these results is that the overall productivity would be expected to improve, if military expenditures are replaced by civilian expenditures.