Macroeconomic effects of fiscal policy in Pakistan: a disaggregate analysis

This study analyzes the macroeconomic effects of fiscal policy on macroeconomic variables in Pakistan. The study utilizes VAR framework and uses quarterly data of Pakistan from 1976Q1 to 2017Q4. The results showed that after an increase in government expenditures, private consumption and prices take three quarters to increase, while private investment follows the declining trend. Private consumption and interest rate are negatively related with taxes, while private investment and prices are positively related with taxes. Real GDP, private consumption and interest rate respond positively with an increase in developmental expenditure, public consumption and public investment. Private investment is negatively related with development expenditure, public consumption and public investment. An increase in direct tax as well as indirect tax leads to an increase in real GDP, private investment and interest rate, while private consumption takes three to five quarters to responds. Private investment and prices are positively related with non-tax revenue, while real GDP, private consumption and interest rate are negatively related. These results support the Keynesian view that government expenditure and taxes are useful tools to stimulate the economic activity, while crowding-out hypothesis holds in Pakistan as well. An active and efficient role of government is required for macroeconomic stability.     

General equilibrium, markets, macroeconomics and money in a laboratory experimental environment

Summary. This paper studies a version of war of attrition where two agents with private information make irreversible investment decisions in continuous time. It analyzes a monotone equilibrium where the amount of delay in the timing of decisions is a monotone function of the strength of ones private signal: an agent with a clear signal makes a prompt decision, whereas an agent with a weak signal delays a decision to gather more information from the move of the other agent. Equilibrium delay is characterized under different assumptions about the number of investment options available.Received: 4 October 1996, Revised: 16 May 1997, JEL Classification Numbers: C72, D82, L13.Masaki Aoyagi: I am very grateful to an anonymous referee of this journal for helpful comments. I also thank seminar participants at the University of Tokyo and Kyoto University.     

关于公共支出与经济增长的国内外研究综述

公共支出与经济增长的关系一直以来为经济学家们所争论。持公共支出促进经济增长观点认为,政府公共支出在经济增长中发挥着重要作用,因为它为经济发展提供了大量的公共品和其他具有外部效应的公共福利或服务,从而鼓励和便利了私人投资,形成了一个较好的投资环境,促进了经济增长。而持反对意见的认为,公共支出往往是生产率较低的,为融通政府支出而形成的高税收又会对私人部门的消费和投资造成很大的负面影响,因此,必须缩减政府支出,才能保证经济增长。当然也有人持两者根本就没有关系的观点。     

Robust estimation of models of Engel curves

Both standard and robust methods are used here to estimate models of Engel curves for three household commodities, namely, food, transport, and tobacco and alcohol in Canada. The income elasticities of demand computed from the various methods differ significantly for the transport and tobacco-alcohol consumption where there are obvious outliers and zero expenditures problem. Robust estimators point to lower income elasticities and have better performance than the standard LS and Tobit estimator. These results are analyzed in the light of the information on finite-sample performance obtained in a previous Monte Carlo study. First version received: July 2000/Final version received: July 2001 RID="*" ID="*"  I wish to thank Victoria Zinde-Walsh, John Galbraith, Clint Coakley, two anonymous referees and an associate editor for helpful comments. I would also like to thank Anastassia Khouri for kindly providing the 1992 Family Expenditure Survey of Canada data.     

Do government purchases crowd out investment?

The objective of this study is to determine whether federal government purchases negatively impact private investment using times series regression analysis. This study uses quarterly data from the years 1986.1 to 2004.4 in order to provide a relatively contemporary evaluation of the effects of federal purchases on private investment. The empirical results in this study reveal that increases in federal urchases, expressed as a percent of GDP, act to reduce new investment, which provides further support for the theory that government expenditures crowd out private investment. (JEL: E22, E62)     

我国政府支出和公共投资对私人投资的效应分析

首先采用Diamond模型对公共投资及各项政府支出对私人投资影响进行理论分析;然后利用1980~2005年间的数据,运用协整检验、单方程误差修正模型分析了我国政府支出和公共投资及各项政府支出对私人投资的长短期效应;经验结果表明无论从长期还是短期看政府支出挤出了私人投资而公共投资则挤入了私人投资,国防支出和行政管理支出在长期和短期都挤出了私人投资,社会文教支出长期挤入了私人投资,短期挤出了私人投资。     

GOVERNMENT CONSUMPTION AND THE COMPOSITION OF PRIVATE EXPENDITURE: A CONDITIONAL ERROR CORRECTION MODEL

In this paper we provide empirical evidence of the relationship between government purchases and private expenditure by adopting a microeconomic approach. Using UK quarterly data, a long‐run demand system conditioned to the public sector is obtained by specifying a vector error correction model in which government consumption is assumed as an exogenous I(1) forcing variable. Our findings reject the hypothesis of separability of individual preferences between public and private expenditures, with simultaneous crowding‐out/in effects. Moreover, crowding‐out effects of government consumption on private spending are found to be larger for those goods and services that produce similar utility.     

Structural change in the United States: Social accounting estimates for 1982–1988

During the 1980's, extensive structural adjustments took place in the U.S. economy. This paper uses estimates of sectorally detailed social accounting matrices to evaluate the changes in receipt and expenditure patterns, including interindustry linkages, over the 1982–1988 period. Among other effects, our results reveal increasing service orientation, shifts in energy use, and increased import and foreign investment dependence. Detailed evidence on direct and indirect demand linkages indicates large shifts in the composition of government expenditure and private investment, the latter being intensified by declines in the rate of domestic capital formation.We would like to thank Greg Alward for the 1982 IMPLAN input-output data, Norman Bakka for the National Income and Product Account Data, Ken Hanson for helpful suggestions, Mark Planting for 1985 BEA input-output data, Valerie Personick for the activity output data, and two anonymous referees for helpful comments.     

Contracting out refuse collection

In this paper we seek an explanation for the reservations of local authorities towards contracting out. Although empirical evidence suggests that contracting out results in a significant cost decrease, a majority of Dutch municipalities provides for waste collection services themselves. Based on theoretical insights we model the choice between private, public, in-house, and out-house refuse collection. The models are estimated using a database comprising nearly all Dutch municipalities. We find evidence that the number of inhabitants, the transfer by central government, and interest group arguments are important explanations. Interestingly, ideology seems to play a minor role.  Compared to earlier studies we estimate more general models. Although the same qualitative results are found for parametric and semiparametric models, we find strong statistical evidence that a parametric specification is far too inflexible. Differences between the parametric and the semiparametric marginal effects are substantial. Thus, more attention is needed for the implications of model specification. First version received: November 2000/Final version received: May 2002 We thank two anonymous referees for their comments on an earlier version.     

Taxation and market work: is Scandinavia an outlier?

This paper argues that it is essential to explicitly consider how the government spends tax revenues when assessing the effects of tax rates on aggregate hours of market work. Different forms of government spending imply different elasticities of hours of work with regard to tax rates. I illustrate the empirical importance of this point by addressing the issue of hours worked and tax rates in three sets of economies: the US, Continental Europe and Scandinavia. While tax rates are highest in Scandinavia, hours worked in Scandinavia are significantly higher than they are in Continental Europe. I argue that differences in the form of government spending can potentially account for this pattern. An early version of the paper was presented at the 2003 conference in honor of Prescott being award the Nemmers Prize in Economics, held at the Federal Reserve Bank of Chicago. I have benefitted from the comments of numerous seminar participants, but would like to particularly thank Robert Lucas, Ed Prescott, and Nancy Stokey, as well as two anonymous referees, Stephen Parente and Anne Villamil for useful comments. I thank the NSF for financial support.     

Public Spending and Private Investment: Evidence From Greece

The aim of this paper is to investigate whether there is a link between disaggregated measures of government expenditures and private investment in Greece. A cointegration analysis of a multivariate system of equations is applied in order to empirically estimate the long run relationships between private investment and different measure of government expenditures. Subsequently IRF and VDC are estimated. Government investment is found to assert a positive effect on private investment, supporting in this way the capital accumulation process. On the other hand, government consumption appears to compete for the same resources with government investment, while it negatively affects private investment. [E62]     

FUNCTIONAL ESTIMATES OF JAPANESE GOVERNMENT DOMESTIC EXPENDITURES, FISCAL 1952–1963

The purpose of the paper is to describe current and constant price estimates of Japanese central and local government postwar domestic expenditures by economic type and function recently completed by Miss Yoshiko Kido, International Christian University, Tokyo, and myself. The rationale of the functional classification is to estimate those government expenditures which enhance the economy's productive capacity. Expenditures are divided into four broad functional categories: developmental, disaster repair and prevention, social welfare, and general government. These four categories are subdivided to two levels of disaggregation. We were able to break down government fixed investment, government enterprise inventory investment, current domestic transfers and subsidies into 42 functional components. For constant price series, each functional component by economic type was deflated by separate price indexes. We followed the Economic Planning Agency's procedure for the official national accounts of assuming no productivity change in the provision of government services. Our results are generally comparable to the official national accounts estimates. The major difference is that we attribute considerably more fixed investment to local governments, and correspondingly less to the central level. Government expenditures had the following characteristics. Growth was rapid; in real terms the public sector use of the economy's resources in 1963 was 2.2 times more than in 1952. The elasticity of government expenditures to GNP was unity in current prices, slightly less in real terms. The government postwar share in GNP has been smaller than in European nations and, unlike them, was not rising. This reflects the underlying growth strategy of emphasis upon private business fixed investment. Government consumption expenditures declined relative to GNP, and investment rose. Developmental expenditures comprised the largest share (40–45 per cent) of the government total. The elasticities to GNP of government expenditures by economic and functional categories are provided and discussed. A simple test was made of the cyclical relationship of government expenditures (both total and by category) to GNP. The results suggest that government expenditures, rather than contra-cyclical, were pro-cyclical in effect.     

The macroeconomics of unbalanced growth and the expanding public sector: Some simple tests of a model of government growth

A now classic model of public sector growth is Baumol's (1967) ‘Macroeconomics of Unbalanced Growth’. That model implies that one cause of public sector expenditure growth is a low or zero rate of productivity growth in the public sector relative to the private sector. Previous studies have tested, and partially confirmed, the Baumol hypothesis by computing productivity indices for various public sector activities. In this paper I attempt to test that model in a more direct manner. The unbalanced growth model is used to predict growth rates of per capita government expenditures, government's share of GNP and the pattern of government expenditure growth. These predictions are compared with observed growth rates of aggregate government expenditures. The model predicts the growth rate aggregate government expenditures, the growth rate of government's share of GNP, and the pattern of government expenditure growth reasonably well, and the data tend to support the Baumol model.     

When will a Dictator be Good?

Dictatorship is the predominant political system in many developing countries. However, different dictators act quite differently: a good dictator implements growth-enhancing economic policies, e.g., investment in public education and infrastructure, whereas a bad dictator taxes her citizens for her own consumption. The present paper provides a theoretical model by deriving underlying determinants of dictatorial behavior. We assume that the engine of economic growth is private investment. It can increase the productivity of individuals who invest, as well as the aggregate technological level. A good dictator encourages this investment in order to tax more. However, the cost of this encouragement is that the ensuing higher growth rate will induce earlier democratization. In this paper we will illustrate the risk of choosing a growth-enhancing policy, while leading to additional tax revenues in the short-run will also increase the likelihood of a revolution resulting in the eventual overthrow of the dictator. Furthermore, we will find that the higher the return from private investments the less likely the dictator will be a good one. Contrary to McGuire and Olson (J Econ Lit 34:72–96, 1996) we find that a long life-time does not always induce positive incentives among dictators. I wish to thank Monika Merz, who carefully read the earlier version of this paper and provided many valuable suggestions. I also would like to thank the editor, the anonymous referee, Uwe Sunde, Philipp Kircher and participants at the 4th international annual conference of JEPA for helpful comments. I am grateful to Stephan Heim for his assistance. All possible errors are, of course, mine.     

Auctioning incentive contracts: The common cost,independent types case

Laffont and Tirole (1987) analyzed the problem of a regulator that wants to select one ofn firms to carry out a single indivisible project when the firms have private and independent costs and have the possibility of an ex-post investment in (non-observable) effort to reduce the (observable) cost.This paper generalizes the analysis to a model of common costs, unknown at the bidding stage, while keeping the assumption of independent types. I show that the main characteristics of the private costs model are kept in a common cost framework. I provide two mechanisms that may be used to implement the optimal contract.This is a much revised version of a part of chapter one of my Ph.D. dissertation. I would like to thank Drew Fudenberg, Oliver Hart, and two anonymous referees for their comments. I am especially indebted to Jean Tirole, who suggested this problem to me. I have also benefited from presentations at MIT and the EARIE 93 Meeting. Financial support from INVOTAN (grant 3/88/PO) is gratefully acknowledged. Remaining errors are my own.     

Crowding-out and crowding-in effects of the components of government expenditure

This article examines the effects of disaggregated government expenditure on investment using fixed- and random-effect methods. Using the government budget constraint, the analysis explores the effects of tax- and debt-financed expenditure for the full sample, and for subsamples of developed and developing countries. In general, tax-financed government expenditure crowds out more investment than debt-financed expenditure. Expenditure on social security and welfare reduces investment in all samples while expenditure on transport and communication induces private investment in developing countries.     

Effects of government spending on private investment

This paper investigates the effects of military and non-military public expenditures on gross private investment using cointegration and error-correction analysis. The latter type of public spending is disagreggated into expenditures of infrastructure, consumption and other general government expenditures. The empirical evidence from four emerging European countries namely, Greece, Ireland, Portugal and Spain suggests that in some cases public capital spending stimulates investment, while in others it depresses it. Also, the results tentatively indicate that defence spending exerts no influence on private investment, thus adding to the ongoing controversy of the economic effects of military spending.     

我国知识生产投入产出关系的动态分析

知识生产和创新是促进技术进步和经济增长的重要因素。企业通过R&D投入可以生产出新知识,知识积累形成知识存量,知识存量又推动了技术进步,并进一步引致经济增长。基于新增长理论关于知识生产函数的基本设定,本文首先给出了一个扩张形式的知识生产函数,而后根据我国现实经济数据,在向量自回归的框架下通过脉冲响应函数和方差分解考察了各类因素对我国知识生产的影响。研究表明,R&D经费、R&D人员和知识存量对我国知识生产具有显著的促进作用;外商直接投资和进口对我国知识生产的促进作用不显著。本文认为,应采取切实措施鼓励企业增加R&D投入,同时增加政府财政支出中R&D投入的力度。     

Repeated auctions of franchises for nonrenewable resources

In maximizing the net total government take from exploitation of nonrenewable natural resource endowments, the government faces the problem that extraction companies possess private information about extraction capacities (adverse selection). In a repeated auctions model, I show that it is optimal to deviate from bidding parity, even in the absence of moral hazard. The second period auction is biased to mitigate the externality problem that stems from intertemporal dynamics in extraction costs.This research has been financed by the Research Council of Norway. I would like to thank K»re P, Hagen, Geir B. Asheim, Diderik Lund, and two anonymous referees for helpful comments. I have also benefited from comments at a seminar at the Norwegian School of Economics and Business Administration, and at the International Institute of Public Finance (IIPF), 51st congress, Lisbon, August 1995. The paper is a refined version of Discussion paper 1/95, Institute of Economics, Norwegian School of Economics and Business Administration.     

Public Investment and Economic Growth in Latin America: an Empirical Test

The paper analyzes the impact on economic growth of public investment spending and other relevant variables (such as human capital) for nine major Latin American nations over the 1983–93 period. The results suggest that both public and private investment spending contribute to economic growth. Overall central government consumption expenditures, on the other hand, are found to have a negative effect on private investment and growth. Finally, public expenditures on education and healthcare are found to have a positive and statistically significant effect on private capital formation and long–term economic growth. From a policy standpoint, the results suggest that indiscriminate cuts in public and private investment spending are likely to be counterproductive in the long run, and more importantly, scarce public expenditures should be channeled to the promotion of new human capital (via primary and secondary education) and the maintenance of existing human capital (through healthcare expenditures).