Economic Growth With Optimal Public Spending Compositional

This paper uses a one-sector, endogenous growth model to study optimal composition between public investment and consumption in government expenditure and its relationships with economic growth. Assuming a benevolent government which maximizes a representative household’s lifetime utilities, the paper determines the unique, interior public investment share in government’s budgets, which is determined by policy and structural parameters. It finds that the conventional determinants of economic growth now generate stronger growth effects, via their indirect impacts upon optimal public spending composition. The effects emerge from raising the marginal utility of private consumption, relative to the marginal utility of public consumption, thereby inducing public investment and increasing economic growth. Our quantitative results suggest that the growth effect is sizable. The large growth effect via optimal public investment in our model has implications to East Asian economic growth miracles where public investment share and economic growth are both higher than other area’s countries.public consumption, public investment, economic growth

Intersectoral Spillovers, Relative Prices and Development Traps

[[abstract]]Why is the economic growth rate so low in poor countries? This paper offers an explanation by using a simple two-sector AK growth model with intersectoral linkages and high relative prices of intermediate goods. Intersectoral linkages lead to two balanced growth paths (BGPs). The high-growth BGP is a source. The low-growth BGP is a sink because it has a small final goods sector, small intersectoral spillovers from the final goods sector to the intermediate goods sector, and small marginal products in the intermediate goods sector, yielding high relative prices of intermediate goods. The low-growth BGP is an attractor and thus development trap. To produce a big push effect, this paper analyzes the first-best policy and finds that a subsidy to own consumption and a provision of public goods to the final goods sector can internalize the external effect and render the low-growth BGP infeasible. As a result, there is only the high-growth BGP.[[notice]]補正完畢[[incitationindex]]SSCI[[booktype]]電子

Import Tariffs and Growth in a Model with Habits

This paper studies the relationship between tariffs and economic growth in a two-country AK growth model. We find that a sufficiently higher tariff can increase or decrease economic growth, which depends on the levels of productivity coefficients in both countries. Moreover, the Ricardian theorem of comparative advantage holds in the long-run equilibrium and local indeterminacy emerges in the case of incomplete specialization under milder conditions compared with conventional literature.AK growth model, two-country, tariffs, growth, indeterminacy

Multiple Equilibria in a Growth Model with Habit Persistence

This paper uses an otherwise standard, competitive growth model without externality and distortions to establish multiple balanced growth paths. Our model is based on the standard one-sector, endogenous growth model of Romer (1986), with a twist that households’ preference depends partly upon how his/her consumption compares to a habit stock formed by his/her own past consumption. This model establishes multiple equilibria because habit persistence in preference induces an intertemporal complementarity effect among consumption flows, with current consumption reinforcing future consumption. As a result, there exist two balanced-growth paths, with one path exhibiting low consumption and habits and high economic growth, and the other exhibiting high consumption and habits and low growth, and thus a development trap. Both steady states are saddle points, but an initial condition cannot pin down the steady state to which an economy converges. Both steady states cannot be pareto-ranked because of no market failure.habit persistence, multiple equilibria

General fund financing, earmarking, economic stabilization and welfare

Discussion has been made concerning pros and cons of the ways of financing public projects via either earmarking or general fund based upon a public finance approach. The paper studies the implications of desirability of earmarked and general fund based upon economic stabilization in a two-sector growth model. Regardless of the nature of public goods, earmarked tax contributes to aggregate stabilization, while general fund may be destabilizing and cause fluctuations. The underlying mechanism in favor of earmarked taxes against general fund is that general fund creates intersectoral externalities and strategic complementarities that is sufficiently large to exert endogenously persistent and recurring fluctuations in aggregate activities in the absence of shocks to fundamentals. Earmarked taxing generates only sector-specific externalities that are too small to exert local indeterminacy. In a calibrated version, we compute the level of long-run welfare and the results reflect favorably upon the use of earmarked taxing.earmarked tax; general fund finance; indeterminacy, welfare

Inflation and Growth: Impatience and a Qualitative Equivalence

This paper studies the role of an endogenous time preference on the relationship between inflation and growth in the long run in both the money-in-utility-function (MIUF) and transaction costs (TC) models. We establish a qualitative equivalence between the two models in a setup without a labor-leisure tradeoff. When the time preference is decreasing (or increasing) in consumption and real balances, both the MIUF and TC models are qualitatively equivalent in terms of predicting a negative (or positive) relationship between inflation and growth in a steady state. Both a decreasing and an increasing time preference in consumption are consistent with the arguments in the literature. While a decreasing time preference in real balances corroborates with empirical evidence, there is no evidence in support of an increasing time preference in real balances.endogenous time preferences, superneutrality, qualitative equivalence

Status and Multiple Growth Regimes

In order to explain multiple growth regimes, one of the working hypotheses is based on initial conditions. Using a standard optimal growth with the status effect represented by wealth a la Friedman (1953), this paper obtains multiple growth regimes based on initial conditions without reliance on other assumptions such as nonlinearities of production or consumption functions and heterogeneous agents/savings behavior. With the status effect, the resulting equilibrium distribution is characterized by a group with a lower level of income and another group with a higher level of income. Globally, a sufficiently strong monetary policy may be an instrument in order for an economy in poverty traps to take off and become wealthy in the long run. Locally, our model sheds light on the relationship between money/inflation and capital in the long run that, given general cash-in-advance constraints on investment relative to consumption, is determined by the curvature of the utilities of wealth and consumption.one-sector growth model, wealth effect, CIA constraint, takeoff

Stability of a Small Open Economy under Nonlinear Income Taxation

The stabilization effect of nonlinear income taxation is addressed in the standard model of small open economy. It is shown that if income taxation schedule is progressive, the small open economy tends hold saddle-point stability. On the other hand, if taxation on the interest income is regressive, then the small open economy may exhibit sunspot-driven fluctuations or it displays a diverging behavior