Competing in taxes and investment under fiscal equalization

The paper considers a model of federation with two heterogeneous regions that try to attract the capital by competing in capital income taxes and public investment that enhance the productivity of capital. Regions' choices determine allocation of capital across the regions and their revenues under a tax sharing scheme. This framework allows for the examination of different approaches to fiscal equalization schemes [Boadway, R., Flatters, F., 1982. Efficiency and equalization payments in a federal system of government: a synthesis and extension of recent results, Canadian Journal of Economics 15, 613-633; Weingast, B.R., 2006. Second Generation Fiscal Federalism: Implication for Decentralized Democratic Governance and Economic Development, Working Paper, Hoover Institution, Stanford University]. We show that tax competition distorts (downwards) public investments and that the equalization grants discourage public investments with a little effect on equilibrium taxes. However, the equalization schemes remain beneficial not only for the federation and, under a low degree of regional asymmetry, also for each region.     

Assessing the contribution of public capital to private production: Evidence from the German manufacturing sector

Using time-series cross-section data from the manufacturing sector of the 11 West German 'Bundesländer' (Federal States) from 1970 to 1996, I examine the impact of public capital on private production. My econometric analysis explicitly takes into account four of the most frequent specification issues in the context of time-series crosssection data analysis: serial correlation, groupwise heteroscedasticity, cross-sectional correlation and non-stationarity of data. For all approaches and tested specifications, I find that public capital is a significant input for production in the manufacturing sector. Moreover, I find that differences in public capital endowment can explain long-term differences in productivity across the Bundesländer. One tentative conclusion that can be drawn from this finding is that differences in public capital endowment might also explain a part of the still-existing productivity gap between manufacturing in East and West Germany. However, I emphasise that the existence of positive effects of public capital on private production is a necessary, but not a sufficient condition for concluding that public investments should be boosted in the future.     

The role of Provincial Government Spending Composition in growth and convergence in China

China’s development policy since 1978 has differed across regions. With rapid aggregate growth has come widening regional inequality. The fiscal decentralisation reforms in 1994 shifted political pressure onto provincial officials to boost local growth through local public investments. These investments affect regional convergence by counteracting regulatory frictions in factor accumulation, and can also determine steady-state growth. However, the effect of public spending allocations across physical and human capital on growth and convergence processes is empirically unexplored for Chinese provinces. We take provincial time-series data on public spending by category, finding local public spending and its components augment convergence rates differently across regions. Spending on education and health contributes significantly more to growth and convergence than capital spending, confirming that the public capital-spending bias is not a local growth-optimising strategy. We suggest a policy of aligning local government promotion incentives to human capital targets to correct local resource misallocation.     

The Tyranny of Concepts: CUDIE (Cumulated, Depreciated, Investment Effort) Is Not Capital

The cost of public investment is not the increment to the value ofpublic capital. Unlike with private investors, there is no plausiblebehavioral model in which every dollar that the public sectorspends as ``investment' creates economically valuable ``capital.'While this simple analytic point is obvious, it has so far beenuniformly ignored in the empirical literature on economic growth,which uses—at best—cumulated, depreciated, investmenteffort (CUDIE) as a proxy for capital stocks. However, particularlyfor developing countries the difference between investment costand capital value is of first-order empirical importance: governmentinvestment is half of more of total investment, and calculationspresented here suggest that in many countries government investmentspending has created little useful capital. This has implicationsin three broad areas. First, none of the existing empirical estimatesof the impact of public spending has identified the productivityof public capital. Even where public capital has a potentiallylarge contribution to production, public-investment spendingmay have had a low impact. Second, it implies that all estimatesof total factor productivity in developing countries are deeplysuspect as there is no way to empirically distinguish betweenlow growth because of investments that create no factors andlow growth due to slow productivity growth. Third, multivariateregressions to date have not adequately controlled for capitalstock growth, which leads to erroneous interpretations of regressioncoefficients.     

Public and private capital productivity in Russia: a non-parametric investigation

The productivity of public capital has been very popular research topic for US and other OECD countries, while studies using data from transitional countries are almost non-existent. In this paper, we analyze the productivity of public and private capital in Russia with parametric and non-parametric regression methods utilizing a unique regional level panel data from 2003 to 2007. More specifically, we assess public capital’s spillover effects, i.e., the productivity of public capital on private output, as well as the productivity of different capital ownership types on total output. We find that public capital has a clear positive effect on private output. However, our estimates and test statistics show that parametric methods are not able to grasp vast non-linearities and heterogeneity present among Russian regions, while the non-parametric approach can capture these important features of the data better. Furthermore, we find that multicollinearity is an important methodological problem which should be accounted for in analysis concerning capital data. Our results also suggest that the impact of public capital in Russia is heterogeneous in the sense that for some regions its contribution to private output is insignificant or even negative while it has a considerable positive role for most regions. Concerning the capital elasticities of total output, we find that public capital is less productive than private capital and roughly as productive as joint private-public capital.     

Comprehensive income taxation, investments in human and physical capital, and productivity

This paper analyses the implications of the comprehensive income tax for the accumulation of human and physical capital and for the overall productivity level of the economy. A comprehensive income tax, applying to both labour income and capital income, is shown to discriminate against investments in human capital relative to investments in physical capital. It has an adverse impact on human capital accumulation and lowers productivity.     

Productivity in China's high technology industry: Regional heterogeneity and R&D

This paper analyzes the impact of Research and Development (R&D) on the productivity of China's high technology industry. In order to capture important differences in the effect of R&D on output that arise from geographic and socioeconomic differences across three major regions in China, we use a novel semiparametric approach that allows us to model heterogeneities across provinces and time. Using a unique provincial level panel dataset spanning the period 2000–2007, we find that the impact of R&D on output varies substantially in terms of magnitude and significance across different regions. Results show that the eastern region benefits the most from R&D investments, however it benefits the least from technical progress, while the western region benefits the least from R&D investments, but enjoys the highest benefits from technical progress. The central region benefits from R&D investments more than the western region and benefits from technical progress more than the eastern region. Our results suggest that R&D investments would significantly increase output in both the eastern and central regions, however technical progress in the central region may further compound the effects of R&D on output within the region.     

Complementarities between firm-sponsored training and information technology use

In this article, we investigate the presence of possible complementarities between investments in information technology (IT) and firm-sponsored training using economy-wide longitudinal representative workplace-level data. Since information on the firm’s capital stock is often missing in such representative data, we match our workplace records to tax data to construct measures of the firm’s capital stock. We find some evidence of positive complementarities between investments in human capital and IT, suggesting that on-the-job training can also have a positive impact on productivity when complemented with investments in CAD or other technologies.     

A dependent economy model of public expenditure and the exchange rate

This paper examines the impact of public expenditure shocks on the exchange rate and the external accounts in a macroeconomic model of exchange rate determination. It extends the dependent economy approach to the open economy based on the tradables/nontradables dichotomy by incorporating international capital flows and intertemporal adjustment. Consistent with empirical evidence on exchange rate behavior, yet contrary to a major result of the popular Mundell-Fleming approach, this model suggests that fiscal expansion attributable to increased public expenditure usually causes exchange rate depreciation, not appreciation. However, if the increased public spending is on investment, the exchange rate is neutrally affected.     

The Effects of Public Capital on the Growth in Spanish Productivity

The aim of the article is to provide new evidence concerning the effect of public capital on productivity growth in Spain. To this end, the article follows the growth accounting approach, which, in addition to measuring both the direct and indirect effects of public capital on the total factor productivity, allows for assessing whether there is a distinctive impact of public capital across economic sectors. The results lead to three main conclusions: (1) Public capital has a strong influence on growth when we use data from the whole economy; (2) this influence varies across sectors, being more relevant in the exposed sectors (industry) than in sheltered sectors (agriculture, construction, and services); and (3) irrespective of the definition used for public capital, these basic results remain unchanged. (JEL C30 , E62 , H54 , O47 , O52 )     

The impact of public capital on the US private economy: new evidence and analysis

This paper presents new evidence on the impact of public capital on the productivity of the US private sector. Using a production function approach, we estimate the impact of public investment on private capital productivity, specifically addressing the empirical critiques of earlier studies. We find evidence of a cointegrating relationship in a dynamic specification of an empirical model that includes public infrastructure as a factor of production, indicating the existence of a long‐run relationship between the US public capital stock and the productivity of the private capital stock. The results are used to explore how the decline in the growth rate of the public capital stock would have affected the performance of the private sector.     

NEW MEASURES OF PRICES AND PRODUCTIVITY FOR TRADABLE AND NONTRADABLE GOODS*

Empirical work on the division of real output and prices into tradable and nontradable components has not kept pace with theoretical developments. The conventional proxies of prices and productivity by tradable and nontradable sector are examined and found deficient in several important respects. It is demonstrated that an approach that relies on the long–standing data on gross domestic product by industry of origin can overcome some of these deficiencies. These data are used to construct new annual measures of prices and productivity for tradable and nontradable output for 12 industrial countries over the period 1950–73. While far from precise, the new measures are consistent with the following criteria for distinguishing between tradables and nontradables: the degree of foreign trade participation should be higher for tradables than for nontradables; the degree of international commodity arbitrage, as measured by cross-country correlations of price changes, should be higher for tradables than nontradables; and tradables should be closer substitutes than nontradables for traded goods from other countries (imports). Despite the considerable conceptual advantages of the new measures of prices and productivity over the conventional proxies, correlation analysis indicates that the new and old measures usually move together rather closely in our 12 subject countries. The correlations are higher across the alternative relative productivity measures than for the alternative relative price measures.     

Regional productivity variation and the impact of public capital stock: an analysis with spatial interaction,with reference to Spain

In this article, we examine whether variations in the level of public capital across Spain's Provinces affected productivity levels over the period 1996 to 2005. The analysis is motivated by contemporary urban economics theory, involving a production function for the competitive sector of the economy (‘industry’) which includes the level of composite services derived from ‘service’ firms under monopolistic competition. The outcome is potentially increasing returns to scale resulting from pecuniary externalities deriving from internal increasing returns in the monopolistic competition sector. We extend the production function by also making (log) labour efficiency a function of (log) total public capital stock and (log) human capital stock, leading to a simple and empirically tractable reduced form linking productivity level to density of employment, human capital and public capital stock. The model is further extended to include technological externalities or spillovers across provinces. Using panel data methodology, we find significant elasticities for total capital stock and for human capital stock, and a significant impact for employment density. The finding that the effect of public capital is significantly different from zero, indicating that it has a direct effect even after controlling for employment density, is contrary to some of the earlier research findings which leave the question of the impact of public capital unresolved.     

Public overspending in higher education

We study the trade-off between governmental investments in pretertiary and tertiary education from an efficiency point of view. We develop a model comprising agents with different incomes and abilities, public and private schools, and public universities that select applicants based on an admission exam. Reallocating governmental resources from tertiary to pretertiary education may positively affect aggregate production and human capital if some conditions are satisfied. For instance, in an economy with a high proportion of credit-constrained students, a reallocation of expenditure toward public schools benefits many students, compensating for the negative effect of a decrease in public university investments. We also quantitatively investigate the optimal allocation of public investment between pretertiary and tertiary education, and we find that a 10% increase in productivity of public investments in pretertiary education could increase the optimal GDP between 2.1% and 3%.     

The policy (in)effectiveness of government spending in a dependent economy

This paper analyses the policy effectiveness of government spending in a two-sector open economy whose output and expenditure is comprised of tradables and non-tradables. This framework reveals that government spending on either tradables or, more normally, on non-tradables widens the external deficit, yet how the real exchange rate behaves depends, in the first instance, on in which sector the public spending occurs. It also shows that, irrespective of where government spending falls, there appears to be no significant short run boost to overall output and hence employment a priori, although empirically actual impact would depend on the elasticities of tradable and non-tradable output with respect to the real exchange rate. Furthermore, fiscal stimulus is shown to be unambiguously ineffective if deemed unsustainable by foreign lenders, or implemented under a fixed exchange rate regime with limited capital mobility.     

风险投资与R&D投资促进企业技术创新比较研究

通过分析企业技术创新面临的一些问题和风险,并比较风险投资和企业自主R&D投资促进技术创新的机理和特点。在此基础上验证分析了近10多年,我国风险投资和R&D投资促进工业劳动生产率增长的效应。分析结果显示,这两种投资都对劳动者生产率增长有正的影响效应,当R&D投资或风险投资每变动1%时,劳动者生产率分别提高0.54%和0.13%。最后给出了鼓励发展我国风险投资的政策建议。     

Climate change,health care access and regional influence on components of U.S. agricultural productivity

This article examines factors driving three components of total factor productivity change (TFPC) in U.S. agriculture – technical change (TC), technical efficiency change (TEC), and scale and mix efficiency change (SMEC). We also examine TFPC and contrast implications derived from the component models with those from a directly estimated TFPC model. Our results show that TC and SMEC are both significantly impacted by innovation through public research and improved human capital through education and health care access. TEC and SMEC are significantly affected by farm size, and the latter is significantly affected by public policy. The ratio of family-to-total labour, terms of trade and precipitation have significant impacts on all three components, but extension has no significant impact on any component. Climate change variables are the most impactful factors on each component as well as on TFPC. While the impact of climate change is heterogeneous across regions and components, its estimated historical impact is most often positive. Nearly all TFPC elasticities estimated directly are qualitatively the same as those calculated from the component models and quantitatively similar.     

Catching-up and Regulation in a Two-Sector Small Open Economy

Deregulation is often aimed at reducing mark-up pricing in technologically stagnant sheltered sectors. The paper shows that this may decrease the process of catching-up and welfare since it shifts resources away from R&D-intensive tradables sectors. Catching-up and deregulation are analyzed in an R&D-based growth model that allows for international capital mobility, trade, and spillovers. Knowledge spillovers raise the productivity of R&D in the exposed sector which results in catching-up. In the long run, the economy grows at the exogenous world growth rate. Capital mobility speeds up convergence. Temporary shocks have long-lasting effects as the economy exhibits hysteresis.     

THE REAL EXCHANGE RATE AND THE BALASSA–SAMUELSON EFFECT: THE ROLE OF THE DISTRIBUTION SECTOR

Abstract. This paper investigates the long‐run impact of the distribution sector on the real exchange rate. The main result is that an increase in the productivity and product market competition of the distribution sector with respect to foreign countries leads to an appreciation of the real exchange rate, similar to what a relative increase in the domestic productivity of tradables does. This contrasts with the result that one would expect by considering the distribution sector as belonging to the non‐tradable sector. One explanation may lie in the use of the services from the distribution sector in the tradable sector.     

Does foreign ownership matter?

The paper both compares productivity of Russian firms that have foreign direct investments with productivity of fully domestically owned firms and analyses spillovers from foreign‐owned firms to domestic firms. Foreign firms are found to be more productive than domestic ones, but productivity of the former is negatively affected by slow progress of reforms in the regions where they operate. It is also found that there are positive spillovers from foreign‐owned firms to domestic firms in the same industry, but negative effects on domestic firms that are vertically related to foreign‐owned firms. The stock of human capital in regions where foreign firms operate is one of the factors which help domestic firms to benefit from the entry of foreign firms.