Goverment investments in schooling and infrastucture: Ramsey vs. public choice paths in a lifecycle growth model

Government financing of schooling is necessitated by capital market imperfections. Governments are also responsible for maintaining a stock of public capital that enters private production function. In this paper the welfare implications and politics of these investments are examined in a version of Diamond (1965) growth model. It is argued that in decentralized environments where the working generation is decisive each period significant underinvestment in both schooling and infrastructure will be observed relative to the Ramsey equilibrium.

The Viability of Economic Reform Programs Supported by the International Financial Institutions

In seeking to make programs of economic reform supported by the IFIs more successful it is important to ensure that they are viable. Will governments be persuaded to participate? Will they complete the programs they negotiate? And will the IFIs be prepared to provide the resources? This paper formally analyses the factors influencing viability. It examines the constraints on participation and the need for incentive compatibility. The analysis identifies the threats to viability and the direction that reform should take. It places the effectiveness of programs firmly within a political economy framework and extends recent theories of program implementation by examining participation from the viewpoint of both the governments that demand assistance and the IFIs that supply it.

La condicionalidad del FMI: un enfoque basado en la teoría de la política con grupos de interés

Una de las funciones del FMI es proporcionar préstamos a los países miembros para ayudar a corregir desequilibrios en la balanza de pagos. Estos préstamos están sujetos a unas condiciones cuyo propósito es proteger los recursos del FMI y asegurar la aplicación de políticas que sean compatibles con los objetivos de este organismo. En este articulo se revisan algunos de los trabajos recientes que analizan la condicionalidad de las ayudas en el marco de la teoría de la política con grupos de interés

Smuggling, Currency Substitution and Unofficial Dollarization

Large stocks of U.S. dollars and other hard currencies circulate in the transition economies, in Latin America, and in other countries that have experienced macroeconomic mismanagement. Using a monetary model that combines the legal restrictions and crime-theoretic traditions, this paper demonstrates how leaky exchange controls lead to currency substitution and progressive dollarization. The paper also analyzes the impact of dollarization on the ability of governments to earn seigniorage, the dynamics of dollarization in a growing economy, and the central role of expectations—specifically, confidence in the domestic currency—in determining the extent of dollarization and, potentially, in reversing it.Smuggling;Currency substitution;Dollarization;foreign currency, equation, difference equation, probability, optimization, inflation, equations, monetary economics, price level, black market, terms of trade, foreign exchange, rate of inflation, monetary policy, time series, real value, macroeconomic analysis, aggregate demand, quantity theory, real money, money supply

Foreign Aid with Voracious Politics

Fractious domestic politics are at the root of continued poverty in some developing countries and pose a dilemma for donors and international financial institutions. This paper examines the effects of foreign assistance in countries with plentiful investment opportunities when interest groups compete for unproductive government transfers. We assess conditional and unconditional assistance (project and program aid, loans, and grants). We find that project conditionality alone may fail to spur growth. Official development loans channeled to investment may not increase the recipient's growth and welfare even if interest groups are unable to appropriate aid funds directly. Conditions must tackle the domestic drivers of inefficient fiscal policies. To improve the composition of government expenditure, increase growth, and improve welfare, tax rates must be kept constant and loan repayment be financed by cuts in unproductive transfers. Official development grants are superior to loans of the same net present value if donors cannot enforce conditions on assistance.

Fiscal Policy and Economic Development

This paper offers possible explanations for three generally observed facts about fiscal policy and development: (F1) The relative size of government increases as an economy develops, (F2) The rise in government and taxation are associated with rising or constant economic growth rates, and (F3) Today''s developing countries have larger government sectors than did today''s developed countries at similar stages of development. The explanations for these facts are based on the structural transformation from traditional (mostly agricultural) to modern (industrial and post-industrial) production, rising public infrastructure investment, and less representative governments in many of today''s developing economies.Fiscal policy;Agriculture;Developed countries;Developing countries;Government finance statistics;Taxation;tax rates, growth rates, economic growth, tax base, growth rate, tax revenue, economic growth rates, budget constraint, government budget, private consumption, government budget constraint, tax revenues, growth model, public expenditures, tax evasion, tax structure, government expenditure, neoclassical growth model, formal sector, public expenditure, tax changes, capital formation, government spending, public spending, government expenditures, tax share