Spillover effects of public capital formation : evidence from the spanish regions

Maybe because of the inconclusive nature of the results on the impact of public capital on output at the regional level, the issue of the possible existence of the regional spillovers from public capital formation has received little attention. The objective of this paper is to provide evidence on the possible existence of such spillovers. We consider the case of Spain and its seventeen regions. Our methodological approach consists in estimating an aggregate VAR model for Spain as well as seventeen region-specific VAR models in which both capital installed in the region and capital installed outside the region are allowed to play a role in enhancing regional output. The estimation results can be summarized as follows. The aggregate effects of public capital formation in Spain are important. They cannot, however, be captured in their entirety by the direct effects in each region from public capital installed in the region itself. When for each region both the capital installed in the region and the capital installed outside the region are considered the total disaggregated effect from the seventeen regional models are very much in line with the aggregate results. Furthermore, the aggregate effect seems to be due in almost equal parts to the direct and spillover effects of public capital formation. Ultimately, this paper establishes the relevance of both capital installed in each region and spillover effects in the understanding of the regional decomposition of the aggregate effects of public capital formation. In doing so it opens the door to some tantalizing and potentially highly charged research issues in terms of the determination of the optimal location of public investment projects.public capital, regional spillovers

Will Women Save more than Men? A Theoretical Model of Savings and Marriage

This paper presents an inter-temporal model of individual behavior with uncertainty about marriage and divorce and which accommodates the possible presence of economies or diseconomies of scale from marriage. We show that a scenario of higher marriage rates and higher divorce rates will be associated with higher savings rates in the presence of economies of marriage and with lower savings rates in the presence of diseconomies of marriage. In the context of traditional gender roles, this implies higher saving rates by young men and lower saving rates by young women than in less traditional countries, the opposite being the case with saving rates of married women relative to those of married men. We establish the relevance of traditional gender roles and marital status to understanding cross-country variation in gender differentials in savings behavior.savings behavior, marriage, divorce, economics of marriage, gender roles

PUBLIC INVESTMENT, ECONOMIC PERFORMANCE AND BUDGETARY CONSOLIDATION: VAR EVIDENCE FOR THE FIRST 12 EURO COUNTRIES

In a period of heightened concern about fiscal consolidation in the euro area, a politically expedient way of controlling the public budget is to cut public investment. A critical question, however, is whether or not political expediency comes at a cost, in terms of both long-term economic performance and future budgetary contention efforts. First, common wisdom suggests that public investments have positive effects on economic performance although the empirical evidence is less clear. Second, it is conceivable that public investment has such strong effects on output that over time it generates enough additional tax revenues to pay for itself. Obviously, it is equally plausible that the effects on output although positive are not strong enough for the public investment to pay for itself. In this paper, we investigate these issues empirically for the first twelve countries in the euro area using a vector auto-regressive approach. We conclude that the euro countries can be gathered in four groups according to the nature of the economic and budgetary impact of public investment. The first group includes Austria, Belgium, Luxembourg, and Netherlands, where the economic effects are either negative or positive but very small and, therefore, cuts will be harmless for the economy and effective from a budgetary perspective. The second group includes Finland, Portugal, and Spain, where public investment does not pay for itself and, therefore, cuts are an effective tool of budgetary consolidation although they are harmful for the economy. The third group includes France, Greece, and Ireland where public investment just pays for itself and therefore cuts are not an effective way of achieving long-term budgetary consolidation and are harmful for the economy. Finally, the fourth group includes Germany and Italy, where public investment more than pays for itself and, therefore, cuts are not only harmful for the economy but also counterproductive from a budgetary perspective.Public Investment, Economic Performance, Budgetary Consolidation, Euro Area

Impact of Public Investment Upon Economic Performance and Budgetary Consolidation Efforts in the European Union

In an period of heightened concern about fiscal consolidation in the Euro zone, a politically expedient way of dealing with the situation is to cut public investment. A critical question, however, is whether or not political expediency comes at a cost, in terms of both long-term economic performance and future budgetary consolidation efforts. In fact, one would expect any type of investment, including public investment, to improve the long-term economic performance. Moreover, to the extent that public investment increases output in the long-term, it also expands the tax base and, therefore, tax revenues in the long term. It is conceivable that public investment has such strong effects on output, that over time it generates enough additional tax revenues to pay for itself. It is equally plausible that the effects on output although positive are not strong enough for the public investment to pay for itself. In the first case, cuts in public investment hurt long-term growth and make the future budgetary situation worse. In the second case, cuts in public investment hurt the long-term economic performance without hurting the future budgetary situation. In this paper we investigate this question empirically in the context of a number of countries in the Euro zone using a vector auto-regressive/error correction mechanism approach to determine the effects of aggregated public investment on output, employment and private investment. Our ultimate objective is to determine in which regime do the different countries seem to fit and determine to what extent cuts in public investment may turn out to be counter-productive in the long-term from a budgetary perspective. JEL Classification: C32, E62, H54, O52

Controlling the public wage bill in Portugal: the case of university professors

Public wages are a large share of the public budget in Portugal and, therefore, hiring freezes are a central feature of the efforts to control the public deficit. The system of public career advancement, however, may lead to increases in the wage bill even in the presence of hiring freezes. We estimate this wage drift effect in the case of university professors. We use a logit analysis with 1999 census data to identify the determinants of career advancement, to estimate the employment distribution in previous years and to obtain the corresponding wage bill. We estimate that the annual wage drift is 2.6%, a figure well above the gross domestic product growth rate and, therefore, we conclude that hiring freezes may be far from enough to stop the expansion of the public wage bill.