Government size and economic growth in an endogenous growth model with rent‐seeking

We explore the relationship between government size and economic growth in an endogenous growth model with human capital and an unproductive capital which facilitates rent‐seeking. With exogenous as well as endogenous time discounting, we find a non‐monotonic relationship between the size of government and economic growth. We find that with very high (low) discounting, there is a unique low (high) growth equilibrium, regardless of the size of government. For the intermediate range of discounting, there are multiple equilibria and the growth outcome depends on the size of government. With endogenous time discounting, the growth outcome is path dependent and depends on the level of inherited human capital. However, there is only one stable growth regime and the economy endogenously switches to it. When the institutional constraints on rent‐seeking are not extremely high, the stable regime is the one in which there is a high‐growth equilibrium for a smaller size of the government and for larger size, both the high‐growth and the low‐growth equilibrium coexist. When the institutional constraints on rent‐seeking are extremely high, there exists only a unique high‐growth equilibrium irrespective of the size of government. Furthermore, economies with bigger size of the government and/or with poor quality institutions will take longer to endogenously switch to this stable growth regime.     

From Malthus to Modern Growth: Can Epidemics Explain the Three Regimes?*

We model demographic and economic long‐run development in a setting where mortality is endogenous and subject to epidemic shocks. The model replicates the full transition from Malthusian stagnation to modern growth. Consistent with the historical facts, the economy also passes an intermediate post‐Malthusian phase where growth rates of both population and per capita income increase simultaneously, as mortality rates fall and become less volatile. The escape from the Malthusian trap is the result of a series of mild epidemic shocks, making it inevitable at some stage, but its timing random. Calibrations show that it can differ by thousands of generations, absent differences in exogenous parameters.     

Unemployment and Growth in the Long Run: an Efficiency‐Wage Model With Optimal Savings*

An efficiency‐wage model of steady‐state equilibrium with labor‐augmenting technical progress is developed to explore the long‐run relationship between unemployment and growth. The rate of productivity growth is either specified exogenously or determined endogenously. In both cases, we preserve key results of the Shapiro–Stiglitz efficiency‐wage analysis without growth. Our model, however, also yields some striking new results. For instance, an exogenous increase in the growth rate may raise the rate of efficiency‐wage unemployment, and a once‐for‐all rise in the labor force may reduce the unemployment rate in the endogenous‐growth case.     

Accomplice Witnesses and Organized Crime: Theory and Evidence from Italy

We develop an agency model of organized crime accounting for the main trade‐offs involved in the introduction of an accomplice‐witness program. We characterize the optimal policy and identify its main determinants in a framework where public officials can be dishonest. Our predictions are tested by using data for Italy before and after the introduction of the 1991 accomplice‐witness program. As predicted by the model and the earlier antitrust literature, the program appears to have strengthened deterrence and enhanced prosecution. Moreover, consistent with a novel prediction of our theory, the evidence suggests that the program efficacy is affected by the judicial system efficiency.     

Factor Price Equality and Biased Technical Change in a Two-Cone Trade Model

We reconsider the effects of long‐run economic growth on relative factor prices across cones of specialization. We model economic growth as exogenous technical change. Allowing for capital biased technical change with a sector bias and for endogenous commodity prices, we find that economic growth may increase or decrease factor price differences across cones. For a neutral demand side and capital biased growth in the most capital intensive sector, we find that economic growth encourages less factor price diversity across cones.     

AN ON‐THE‐JOB SEARCH MODEL OF CRIME,INEQUALITY, AND UNEMPLOYMENT*

We extend simple search models of crime, unemployment, and inequality to incorporate on‐the‐job search. This is valuable because, although simple models are useful, on‐the‐job search models are more interesting theoretically and more relevant empirically. We characterize the wage distribution, unemployment rate, and crime rate theoretically, and use quantitative methods to illustrate key results. For example, we find that increasing the unemployment insurance replacement rate from 53 to 65 percent increases unemployment and crime rates from 10 and 2.7 percent to 14 and 5.2 percent. We show multiple equilibria arise for some fairly reasonable parameters; in one case, unemployment can be 6 or 23 percent, and crime 0 or 10 percent, depending on the equilibrium.     

Effect of the Tax System ON R&D Intensity,Growth, Wages and Consumption Share

We propose a general equilibrium knowledge‐driven (semi‐)endogenous‐growth model with horizontal R&D, which is extended to consider two types of labour, skilled and unskilled, and exogenous government expenditure, financed through taxes on financial assets and on labour income, to analyse the implications of the tax system on R&D intensity, economic growth, wage inequality and consumption share in the output. In particular, we show that: (i) taxes have negative influence in the consumption share, being higher the marginal effect of the labour‐income tax; (ii) for any given government expenditure share, an increase (a decrease) in financial‐assets tax decreases (increases) the labour‐income tax; (iii) only the financial‐assets tax affects negatively the R&D intensity and the skill‐premium; thus, to reduce the skill‐premium the financial‐assets tax must increase; (iv) ignoring the effect on wage inequality and on R&D intensity, taxes are substitutes.     

Financial development and economic growth: long‐run equilibrium and transitional dynamics

We analyze the impact of financial development on economic growth. Differently from previous studies that focus mainly on balanced growth path outcomes, we also analyze the transitional dynamics of our model economy by using a finance‐extended Uzawa–Lucas framework where financial intermediation affects both human and physical capital accumulation. We show that, under certain rather general conditions, economic growth may turn out to be non‐monotonically related to financial development (as suggested by the most recent empirical evidence) and that too much finance may be detrimental to growth. We also show that the degree of financial development may affect the speed of convergence, which suggests that finance may play a crucial role in determining the length of the recovery process associated with exogenous shocks. Moreover, in a special case of the model, we observe that, under a realistic set of parameters, social welfare decreases with financial development, meaning that even when finance positively affects economic growth the short‐term costs associated with financial activities more than compensate their long‐run benefits.     

KEEPING UP WITH THE JONESES, GROWTH, AND DISTRIBUTION

A recent class of models on ‘keeping up with the Joneses’ suggests that comparison with the consumption of other individuals affects individual utility. This paper nests three variants of the ‘Joneses’ effect into an otherwise standard growth model. Under some conditions, growth and distribution are jointly determined, presenting thus a unification of the relevant theories. These variants are however not equivalent in terms of their effects on growth and distribution. It is also shown that, at least if comparisons‐in‐mean predominate, rises in the mean skills level and in the exogenous skills variance increase both growth and inequality with ambiguous effects on aggregate welfare.     

Rebranding ex‐convicts

We develop a theoretical model explaining how the problem of poor labor market outcomes for ex‐convicts might be alleviated by an external intervention. While employers wish to avoid associating with those who will end up returning to crime, they cannot be certain from the available information which convicts will reoffend and which will not. We illustrate that, notwithstanding this informational asymmetry, a government (or a civic society) can nevertheless design a costly, yet net socially beneficial program through which some ex‐convicts can credibly convey their good intentions to employers. Such a “rebranding” program can help more ex‐convicts find legitimate work, with fewer electing to return to crime than would otherwise have been the case.     

Status‐Seeking in Criminal Subcultures and the Double Dividend of Zero‐Tolerance

This paper offers a new argument for why a more aggressive enforcement of minor offenses (zero‐tolerance) may yield a double dividend in that it reduces both minor offenses and more severe crime. We develop a model of criminal subcultures in which people gain social status among their peers for being “tough” by committing criminal acts. As zero‐tolerance keeps relatively “gutless” people from committing a minor offense, the signaling value of that action increases, which makes it attractive for some people who would otherwise commit more severe crime. If social status is sufficiently important in criminal subcultures, zero‐tolerance reduces crime across the board.     

NON‐SCALE EFFECTS OF INTERNATIONAL TECHNOLOGICAL‐KNOWLEDGE DIFFUSION ON SOUTHERN GROWTH AND WAGES

We develop a dynamic, general equilibrium non‐scale endogenous growth model of North–South technological‐knowledge diffusion by imitation. Countries differ in levels of exogenous productivity, human‐capital levels and R&D capacity. Growth is driven by Northern innovative R&D and the South converges towards the North. Growth is also driven by human‐capital accumulation, scale effects are removed, imitation is only feasible once a threshold distance to the frontier has been attained and is dependent on the South's relative level of employed human capital and on domestic policies promoting R&D. Imitation promotes partial convergence of inter‐country wages and governs the path of intra‐South wage inequality.     

CRIME AND POVERTY: A SEARCH‐THEORETIC APPROACH*

Numerous studies document that criminal activity is positively related to unemployment and negatively related to educational attainment levels within given communities. We study this phenomenon in the context of a search‐equilibrium model, in which agents choose between formal employment and pursuing crime‐related activities (theft). Prior to their “occupational choices,” agents undertake costly schooling, raising their productivity. Crime acts, in essence, as a tax on human capital by affecting the probability that a worker's earnings (possessions) are subsequently appropriated. There are multiple equilibria. High crime, low levels of educational attainment, long spells of unemployment, and poverty are correlated across them.     

Police Violence and the Underreporting of Crime

This paper examines the relationship between police violence and the reporting of crime. Utilizing original data from a large‐scale household survey conducted in Costa Rica from October 2013 to April 2014 (n = 4,200), we find that the observation of police violence significantly reduces citizens’ willingness to report crime. The implications of this finding are explored using a game‐theoretic model of crime, crime reporting, and police misconduct. The model reveals that although the prospect of police violence against criminals may generate a degree of deterrence for criminal behavior, permissiveness toward police violence also raises expectations about the likelihood of police abuse against law‐abiding citizens. Consistent with our empirics, this reduces citizens’ propensity to report crime, thereby fostering a climate of impunity for criminal activity.     

General budget support as an aid instrument—impact on economic growth

Since the change of the new millennium, general budget support (GBS) has become a prominent, yet controversial and heavily debated, modality for delivering aid. We study GBS as an aid instrument from a cross‐country perspective. We examine if any growth impacts can be identified as a result of the use of GBS. We use data covering nine 4‐year intervals from 1976 to 2011. We modify two supply‐side IV strategies from previous aid–growth literature. In our main approach, we employ an interaction of an exogenous supply‐side variable (donor government fractionalization) and an endogenous variable (probability of receiving GBS) as an instrument for GBS, and in the alternative approach we construct an instrument following a supply‐side approach. Our results suggest that GBS receiving countries have grown faster than countries receiving other types of aid. Selection bias does not explain this result. The growth effect is not only attributed to lagged GBS but also to contemporaneous GBS flows.     

Adjustment Costs and Immiserizing Growth in LDCs

Using a general equilibrium model of a small developing economy, the authors demonstrate that the introduction of asymmetric adjustment costs makes the rate of urban employment respond to an exogenous shock in the aggregate capital endowment, raising the possibility of several counter‐intuitive immiserizing growth scenarios.     

THE IMPACT OF INFLATION ON PROPERTY CRIME

Using U.S. data from 1950 to 2010, we analyze to what extent inflation raises the incidence of property crime. To match our theoretical predictions, we consider different types of property crime (larceny, burglary, motor vehicle theft, and robbery) and broad and narrow definitions of inflation separately. We control for the state of the business cycle and demographic changes over time explicitly. Unobserved or difficult‐to‐measure determinants of property crime are captured through a stochastic‐trend specification within a state‐space framework. We find a robust statistical link between inflation and each of the four property crime rates. Our findings are robust to alternative definitions of inflation and the inclusion or exclusion of different control variables. In terms of policy, our findings suggest that monetary policy that creates inflation has costly spillover effects. (JEL J10, J11)     

SOCIAL NETWORKS AND CRIME DECISIONS: THE ROLE OF SOCIAL STRUCTURE IN FACILITATING DELINQUENT BEHAVIOR*

Delinquents compete with each other in criminal activities but benefit from being friends with other criminals by learning and acquiring proper know‐how on the crime business. We study the subgame‐perfect Nash equilibrium of this game in which individuals decide first to work or to become a criminal and then the crime effort provided if criminals. We show that multiple equilibria with different numbers of active criminals and levels of involvement in crime activities may coexist and are only driven by the geometry of the pattern of links connecting criminals.     

Ageing,human capital and demographic dividends with endogenous growth,labour supply and foreign capital

Portuguese Economic Journal - We add endogenous labour supply to exogenous population growth in an Uzawa-Lucas endogenous growth model with international capital movements. Under non-linearity from...     

CRIMINAL PERCEPTIONS AND VIOLENT CRIMINAL VICTIMIZATION

This paper explores the relationship between various measures of prior victimization and indicators of both the perceived victimization risk and fear of crime. Equations are specified and estimated both for the fear of crime/perception of risk and for prior victimization. Since prior victimizations are exogenous to the determination of the current assessment of risk or fear of crime, it is possible to isolate the independent effects of victimization and extraneous factors, like racial neighborhood composition, in a recursive model structure. The analysis also examines the contribution that individual victimization and extraneous factors make to the overall gap between average victimization rates and average indicators of fear.
Prior victimization explains some of the rather enormous perception of future victimization, but a sizable gap between perceived risk and actual risk remains. Much of that gap appears to be related to proximity to nonwhites, a possible proxy for racial prejudices and beliefs that nonwhite neighborhoods contribute to heightened crime.