The effects of public expenditures on labour productivity in Europe

Empirica - In this paper, we analyse the effects of public expenditures and their structure on productivity growth in industry and services in the European Union (EU) countries (1996–2017)....     

AFDC and illegitimacy ratios: a vector-autoregressive model

The expansion of the government programme of Aid to Families of Dependent Children (AFDC) plays a major role in theoretical explanations of the sharply rising trend in US illegitimacy ratios–the proportion of births occurring to unwed mothers. To date, this role has not been supported by empirical evidence. The present study uses a new approach: time-series data and Granger causation. A series of tests shows robust causal impacts of AFDC on non-white illegitimacy ratios. A counterfactual simulation reveals that about half the increase in non-white illegitimacy ratios over the past two decades can be attributed to an ‘AFDC effect’.     

The effects of off‐farm work on fertilizer and pesticide expenditures in China

This study examines the effects of participation in off‐farm work on farm expenditures on fertilizer and pesticide, using farm household survey data from China. Simple mean value comparisons reveal no statistically significant differences in fertilizer and pesticide expenditures between off‐farm work participants and nonparticipants. However, econometric estimation with a treatment effects model shows a negative selection bias. After controlling for this bias, the empirical results show that participation in off‐farm work exerts a positive and statistically significant impact on fertilizer and pesticide expenditures. Our findings generally suggest that the income effect of off‐farm work stimulates agricultural production by increasing investments in productivity‐enhancing inputs.     

Endogenous hospital regulation and its effects on hospital and non-hospital expenditures

Past studies of hospital rate setting regulation conclude that mature programs have been effective in constraining hospital expenditures. However, if rate regulation is influenced by higher hospital expenditures the relationship between expenditures and rate setting is confounded. This study assesses the impact of rate setting on hospital and non-hospital expenditures using a simultaneous-equation model which separates the effects of hospital expenditures on the decision to regulate from the effects of regulation on expenditures. The simultaneous-equation results indicate that mature rate setting is associated with lower per capita health care expenditures, including hospital and non-hospital expenditures.     

Growth effects of public expenditure on the state and local level: evidence from a sample of rich governments

There is a vast empirical literature investigating the relationship between government size and economic growth. But the empirical evidence of growth effects of public expenditure using cross-country regressions is still inconclusive. According to a number of authors this is not surprising since the negative relationship only applies for rich countries with a large public sector. Restricting their analysis on rich countries only they can show the predicted negative impact. Naturally, a selection of a sub-sample of rich countries is always somewhat arbitrary. Another possibility is to concentrate on governments within a rich country. However, only few studies investigate the effect of state and local spending on economic growth. This study concentrates on the relationship between public expenditure and economic growth within a rich country using the full sample of state and local governments from Switzerland over the 1981–2001 period. The general finding is a fairly robust negative relationship between government size and economic growth. However, in contrast to public spending from operating budgets there is no significant impact on economic growth by expenditure from capital budgets.     

Keynes and Wagner on government expenditures and economic development: the case of a developing economy

This paper investigates the Keynesian view and the Wagner’s Law on the role of public expenditure on economic growth for Malaysia (1970–2004). The empirical results using the Auto-Regression Distributed Lag (ARDL) model and the ‘bounds test’ (Pesaran et al. in J Appl Econ 16:289–326, 2001) showed evidence of a long run relationship between total expenditures (including expenditures on defense, education, development and agriculture) and Gross National Product. The results also show that with the structural break in 1998, the long run causality is bi-directional for GNP and expenditures on administration and health, supporting both Keynes view and Wagner’s Law. For all other expenditure categories the long run causality runs from GNP to the expenditures, which supports Wagner’s Law. An erratum to this article can be found at     

Modelling the effects of promotion expenditures on sales of pharmaceuticals

The successful innovation of pharmaceuticals requires a substantial amount of marketing support, despite concerns about the effects of these marketing efforts. This study considers prior findings that indicate that higher marketing expenditures for a brand reduce its price elasticity of demand, which may lead to higher prices, in the context of the Dutch pharmaceutical market. The authors find that parameters are heterogeneous across brands, and that marketing effects differ across product life cycle stages. They propose a separate analysis of established and new brands. For established brands, marketing efforts neither have a positive effect on sales, nor do they affect the price elasticity. For new brands, several proposed models might capture their diffusion pattern; the diffusion-of-innovation models provide the best results. Marketing accelerates the rate of diffusion and leads to a higher baseline level of sales.     

Learning rational expectations: The finite state case

This paper is devoted to the question of whether traders can learn rational expectations from repeated observations of market data in a stationary environment with finitely many exogenous states of the world. The learning problem is placed in the context of an iterative adjustment process which achieves equilibrium if traders have rational expectations. The main result is that even if traders begin with no knowledge of their environment, there exists an estimation procedure which converges to rational expectations when the environment satisfies a certain regularity condition. The regularity condition is shown to be generic.     

Incentive regulation in local telecommunications: The effects on price markups

The governing bodies of the telecommunications industry instituted a major shift from rate of return to price cap regulation in an effort to foster competition and improve efficiency. This paper focuses on the local exchange market and examines the price markup before and after the implementation of price cap regulation to measure the effects of the change on consumer welfare. The average price markup increased slightly after price cap regulation; however, the average price decreased, indicating that consumers benefited without firms losing from the regulatory shift.      

The effect of state education finance reform on total local resources

Both the federal government and the states use intergovernmental grants to try to change the composition of local spending across different programs, as well as the distribution of resources across localities. Many states are now under court order to use state education grants to reduce local disparities in education spending. While a substantial body of literature suggests that these court orders increase the level and progressivity of state education spending, there is little evidence on their broader effects on the total resources available not just for schools in low-income districts, but for other programs across all localities. We find that states finance the required increase in education spending in part by reducing their aid to localities for other programs, particularly for wealthier areas. Thus, while court-ordered school finance equalizations do increase total state aid to localities for education, they do so at the expense of drawing state intergovernmental aid away from programs like public welfare, health, hospitals, and general services. These findings provide insight into the effectiveness of using earmarked funds to achieve redistribution.     

The effects of regulations on state liquor prices

Several estimation methods agree that state regulations such as resale price maintenance and retail price posting affected the prices of liquor brands up to the mid-1970s in the US states in which the distribution system is privately owned; before-versus-after analysis using the quasiexperimental method provides the strongest evidence. The effects of particular regulations are not so clearcut, however.In the 1970s, the regulations supporting these practices began to be removed. The regulations that continued in effect seem to have lost their potency about that time. The effects of regulation no longer are seen.This paper is an outgrowth of a senior thesis by the second author. We appreciate useful information from Steve Barsby and James M. Ferguson, and helpful comments from Stanley Ornstein and Dennis W. Carlton. Gary L. Marshall of the Distilled Spirits Council of the US provided the information that After 1984, DISCUS no longer published the retailer's prices for distilled spirits sold at retail establishments (correspondence of October 25, 1993).     

Quality,quantity and total expenditures on publicly provided goods: the case of public mental hospitals

This paper proposes a positive model of public sector resource allocation for goods where quality, as well as quantity, is a salient dimension. The model views decisions about quality, quantity, and total expenditures as occuring within a ‘zone of contention’, bounded by minimum requirements for quality and quantity - reflecting technological, regulatory and legal constraints - and a maximum ceiling on total expenditures. The model is consistent with a number of alternative views of the political market place. It is formally derived from a Stone- Geary-type objective function. For purposes of estimation, the model can be transformed into a special case of the CALM model [Fischer and Kamlet (1984)]. The identification requirements for the CALM model are derived. The model is then applied to state expenditures on mental hospitals.     

Disentangling regulatory policy: The effects of state regulations on trucking rates

This paper combines state-level data on trucking rates with information on state-level regulations to estimate the independent effect on rates from three different types of motor carrier regulations: rate regulation; entry regulation; and the provision of antitrust immunity for decisions made jointly by motor carrier rate bureaus. The empirical results indicate that state-level motor carrier regulations generally increase trucking rates, with entry regulation having the largest effect in the LTL (less-than-truckload) sector and rate regulation having the largest effect in the TL (truckload) sector. The study also examines interaction effects among the three types of regulations and concludes that the combination of strict entry requirements and antitrust immunity leads to significant increases in trucking rates.This project was begun when both authors were in the Bureau of Economics of the Federal Trade Commission. The views expressed are those of the authors and do not necessarily reflect the views of the Commission or any individual Commissioner. We are grateful to Ed Rastatter of the Department of Transportation for granting us access to the data analyzed in this report, and to Bruce Allen of Wharton who provided them to us in machine readable form. We thank James MacDonald, Paul Pautler and Ed Rastatter for comments on an earlier draft. We also are grateful to Lynn Carpenter, Karen Condor, Effie Georges, Dolly Howarth, Andrew Kim, Georges Pascoe, and Carolyn Samuels for their research and programming assistance.     

On the distributional properties of household consumption expenditures: the case of Italy

In this paper we explore the statistical properties of the distributions of consumption expenditures for a large sample of Italian households in the period 1989–2004. Goodness-of-fit tests show that household aggregate (and age-conditioned) consumption distributions are not log-normal. Rather, their logs can be invariably characterized by asymmetric exponential-power densities. Departures from log-normality are mainly due to the presence of thick lower tails coexisting with upper tails thinner than Gaussian ones. The emergence of this irreducible heterogeneity in statistical patterns casts some doubts on the attempts to explain log-normality of household consumption patterns by means of simple models based on Gibrat’s Law applied to permanent income and marginal utility.     

The effects of vertical and horizontal incentives on local tax efforts: evidence from China

Tax effort is a measure of a government’s effort to collect taxes. This study explores what impacts both vertical and horizontal incentives have on local governments’ tax efforts in China. For consistency with the literature, we first include typical economic and institutional factors in our analysis. We find that the effects of economic factors on local tax efforts are significant, but the effects of institutional factors tend to be weak. Fiscal decentralization, as a vertical incentive, has a significantly positive effect on tax efforts at the provincial level. Meanwhile, fiscal interaction, as a horizontal incentive, is also taken into account in a spatial specification to explain tax competition among local governments. The results show that local tax effort in China also depends on the horizontal incentive. Hence, to improve local tax effort, the central government should let the locals have more autonomy in collecting taxes and evaluate local tax effort by referring to tax collection in adjacent provinces simultaneously.     

The spillover effects of state spending

This paper estimates the extent to which state spending is influenced by the spending of neighboring states, examining several different metrics of neighborliness in order to better identify the channels for interstate spillovers. It improves on previous studies by taking advantage of exogenous shocks to state medical spending to abstract from correlated local conditions and by allowing for spatial-autocorrelation. Focusing on mandated increases in medical spending, the analysis shows that each dollar of state spending causes spending in neighboring states to increase by almost 90 cents. The most predictive measure of neighborliness is the degree of population mobility between states, suggesting that rational concerns about adverse migration may drive the interdependence of state spending policy.     

An empirical investigation of monetary effects on private consumption expenditures in Austria

This paper presents an econometric investigation of monetary effects on private consumption expenditures in Austria. It tries to add the empirical aspect to the theoretical problem of the relationship between monetary and real sector of an economy.Patinkins theory of the real balance effect provides the link between theoretical and empirical aspects. Taking into consideration further assumptions on aggregation, dynamics and problems of definition of variables, consumption functions of different aggregation levels are specified. Including effects of interest rates and credits one arrives at a first assessment of monetary effects on private consumption expenditures as found from single equation estimates. Significant credit and wealth effects are obtained. Later, systems of equations are estimated and used to investigate real—monetary sector interaction. They allow also a dynamic analysis.In presenting the sequence of microeconomic foundations, further assumptions and macroeconomic functions and systems built upon, it is thought to clarify the connection to traditional theory of real—monetary sectors relationship. It might also give an idea about the resulting problems for meaningful empirical research in this area.

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Zusammenfassung Diese Arbeit beschäftigt sich mit der ökonometrischen Untersuchung monetärer Effekte auf private Konsumausgaben in Österreich. Es wird damit versucht, dem theoretischen Problem der Beziehungen zwischen monetärem und realem Sektor der Wirtschaft einen empirischen Aspekt, der die österreichischen Verhältnisse betrifft, zur Seite zu stellen. Das Bindeglied zwischen Theorie und Empirie stelltPatinkins Theorie des Realkasseneffektes dar, die unter Zuhilfenahme weiterer Annahmen über Aggregation, Definitionen und Dynamik zur Spezifikation von aggregierten und disaggregierten Konsumfunktionen führt. Ergänzt durch Zins- und Krediteffekte läßt sich an Hand von Einzelgleichungen eine erste Einschätzung monetärer Wirkungen auf den privaten Konsum und seine Komponenten durchführen. Es können signifikante Kredit- und Vermögenseffekte festgestellt werden. In diesem Zusammenhang wird auch die Hypothese überprüft, ob die Grenzneigungen zum Konsum aus dem verfügbaren Realeinkommen und aus dem Realfinanzvermögen gleich sind, wie dies durch die Annahme eines kurzfristigen Planungshorizontes impliziert wird.Um die Interaktion von realem und monetärem Sektor zu analysieren, wird ein Gleichungs-system formuliert und geschätzt. Daraus lassen sich Unterschiede zu Einzelgleichungsergebnissen aufzeigen. Mittels alternativer Spezifikation der Konsumgleichungen und der Gleichung des monetären Sektors können Vermögens-, Kredit- und Zinseffekte auch im dynamischen Zusammenhang untersucht werden.Die Aufeinanderfolge von mikroökonomischen Grundlagen, weiterer Annahmen, makroökonomischen Funktionen und schließlich Systemen, soll den Zusammenhang zur traditionellen Theorie der Beziehungen zwischen Geld- und Realsektor verdeutlichen und auf die daraus entstehenden Probleme für eine adäquate empirische Untersuchung hinweisen.

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A preliminary version of this paper was presented at the Winter Meeting of the Econometric Society at Sindelfingen (January 9–11, 1978). It constitutes a condensed version of a project on Money and Private Consumption conducted at the Institute of Econometrics, TU—Vienna, under Prof.G. Tintner. The author is indebted to Prof. Tintner for helpful comments and to Dipl. Ing.R. Rieder for assisting in the computations and providing computer programs. The project was supported financially by the Jubiläusmfonds of the Austrian National Bank.