Coordinating short- and long-run public investment rules

Modelling the accumulation rule evolving public investment is an issue of utmost interest among economists and politicians. The present paper extends the Barro (1990) model of productive government expenditure by considering a time-adapted rule for the public investment/output ratio. The rule allows a particular target on the public investment ratio to be achievable in the long-run. Additionally, throughout the transition, the government may adjust its period-by-period public investment/output ratio in response to the current productivity of public capital relative to its long-run level. The degree of this response depends on a short-run policy instrument, which is decided by the fiscal authority simultaneously to the long-run target ratio. That way, the government problem could be interpreted as a coordination problem between short- and long-term policies. In comparison with a constant-ratio rule, and under alternative taxing scenarios, important welfare improvements are found when coordinating the short- and the long-run policy instruments in an optimal way.Public investment rule, policy coordination, transitional dynamics, Endogenous growth

The public investment rule in a simple endogenous endogenous growth model with public capital: active or pasive?

In dynamic settings with public capital, it is common to assume that the government claims a constant fraction of public investment to total output each period, which is clearly a restrictive assumption. The goal of the paper is twofold: first, to find out a more reasonable rule for public investment, consistent with US data, than the constant-ratio rule; second, to analyze the impact of that rule on welfare and judge the public investment downsizing process held in US since the end of the sixties. Calibrating for US, the model simulation captures the public investment downsizing process held during 1960-2001, as well as the post-1970 slowdown in private factors productivity. Downsizing would be optimal whenever the public capital elasticity is approximately smaller than 0.09, a lower level than the general consensus in the literature. Thus, it is more likely that our result be consistent to Aschauer (1989) and Munnell (1990), which put forth that policymakers would have reduced the stock of public capital below its optimum level along this time.Public investment rule, Policy coordination, Transitional dynamics, Endogenous growth, Public capital elasticity

Growth and welfare: Distorting versus non-distorting taxes

In an infinitely-lived framework, taxing capital income may be growth and welfare enhancing when it allows for correcting distorting externalities in the competitive equilibrium allocation. This is the case when public capital is subject to congestion by private capital or total income [Fisher and Turnovsky (1998)] or when government expenditure exerts an external e.ect on physical capital [Corsetti and Roubini (1996)]. However, none of these features appear in simple one-sector endogenous growth models with public capital. Alternatively, we consider certain realistic fiscal policy constraints in a simple one-sector growth model with productive and unproductive public expenditures, to show that raising revenues through factor income taxes may be preferred to using lump-sum taxes.Endogenous growth, distorting taxes, public investment.

Taxing or subsidizing Factors' rents in a simple endogenous growth model with public capital

This paper tackles the fundamental issue in public finance of wether taxing or subsidizing factor rents. In a one sector endogenous growth model with private and public capital, similar to that in Barro (1990),we find that raising taxes on factors’ income as part of an optimal fiscal policy is a more pervasive result than it seems. The interaction of technological and fiscal externalities is central for this result. For instance, high enough levels of wasteful expenditures to output ratio could make positive income taxes enhance welfare. This ratio would need to be smaller, the lower the spillover externality and/or the larger the elasticities of private and public capital in the private production function.Endogenous growth, Factors’ rents subsidy, Distorting taxes, Public capital.

Inequality of opportunity in Europe: Economic and policy facts

In this paper we consider the main factors that have influenced inequality of opportunity (IO) in Europe. Based on the EU-SILC database, we find that the various levels of development, education and social protection expenditure in 23 European countries significantly affect IO. Dropping out from school, reaching at least secondary levels of education, social spending to promote social integration and child care are the most important variables of those analyzed. The functioning of the labor market and the tax structure, on the other hand, do not have a significant bearing on IO. Lastly, we note that IO and total inequality exhibit differentiated explanatory patterns, which signifies that means of redistribution that serve to reduce overall inequality do not necessarily reduce IO.inequality of opportunity; growth; education; public expenditure; labor market.

Inequality of opportunity and growth

Theoretical and empirical studies exploring the effects of income inequality upon growth reach a disappointing inconclusive result. This paper postulates that one reason for this ambiguity is that income inequality is actually a composite measure of at least two different sorts of inequality: inequality of opportunity and inequality of returns to effort. These two types of inequality affect growth through opposite channels, so the relationship between income inequality and growth is positive or negative depending on which component is larger. We test this proposal using inequality-of-opportunity measures computed from the PSID database for 23 states of the U.S. in 1980 and 1990. We find robust support for a negative relationship between inequality of opportunity and growth, and a positive relationship between inequality of returns to effort and growth.income inequality; inequality of opportunity; economic growth.

The public investment rule in a simple endogenous endogenous growth model with public capital: active or pasive?

In dynamic settings with public capital, it is common to assume that the government claims a constant fraction of public investment to total output each period, which is clearly a restrictive assumption. The goal of the paper is twofold: first, to find out a more reasonable rule for public investment, consistent with US data, than the constant-ratio rule; second, to analyze the impact of that rule on welfare and judge the public investment downsizing process held in US since the end of the sixties. Calibrating for US, the model simulation captures the public investment downsizing process held during 1960-2001, as well as the post-1970 slowdown in private factors productivity. Downsizing would be optimal whenever the public capital elasticity is approximately smaller than 0.09, a lower level than the general consensus in the literature. Thus, it is more likely that our result be consistent to Aschauer (1989) and Munnell (1990), which put forth that policymakers would have reduced the stock of public capital below its optimum level along this time

Air Pollution Convergente and Economic Growth across European Countries

This paper analyses the role of macroeconomic performance in shaping the evolution of air pollutants in a panel of European countries from 1990 to 2000. The analysis is addressed in connection with EU environmental regulation and taking into account macroeconomic performance. We start by documenting the patterns of crosscountry differences among different pollutants. We then interpret these differences within a neoclassical growth model with pollution. Three main pieces of evidence are presented. First, we analyze the existence of convergence of pollution levels within European economies. Second, we rank countries according to its performance in terms of emissions and growth. Third, we evaluate the evolution of emissions in terms of the targets signed for 2010.Economic Growth, Air Pollution, Convergence

How the values of travel time change when a panel data around a new tram implementation is used

Using a dataset with transport choices of the same set of individuals (college students from University of La Laguna), we built a novel three waves panel data around a tramline implementation in the Santa Cruz-La Laguna corridor in Tenerife, Spain. The first two waves were conducted in 2007, just before the tram implementation. They collect information about Revealed Preferences (RP) of actual transport mode choices (car, bus and walk) and about Stated Preferences (SP) in a simulated scenario considering a hypothetical binary choice between the tram and the transport mode currently chosen by the students. The third wave gathers information about RP in 2009, two years after the tram started operating. With this information, we estimate several multinomial logit models and panel mixed logit models with error components. The aim of this paper is to evaluate how the estimation of the Values of Travel Time Savings (VTTS) changes when comparing the results obtained with models that only consider information before or after the tram implementation with that obtained with a panel data approach using the three waves simultaneously (RP/SP in 2007 and RP in 2009). We obtain a better statistical fit to data and, according to our study context, more reasonable VTTS using a panel data approach combining before and after information and both revealed and stated preferences. Our results suggest that when a new transport mode is implemented, the VTTS obtained with models than only consider prior or later periods of time can be underestimated and hence lead to wrong valuations of the benefits associated with the new alternative, even when stated preferences are used to anticipate the change in the transport system

Inequality of Opportunity and Inequality of Effort: a Canonical Growth Model

Theoretical and empirical studies exploring the effects of income inequality upon growth reach a disappointing inconclusive result. Some recent empirical papers have emphasized that one reason for this ambiguity could be that income inequality is actually a composite measure of inequality of opportunity (IO) and inequality of effort (IE). These types of inequality would affect growth through opposite channels, so the relationship between inequality and growth would depend on which component is larger. Based on this preliminary empirical result, we build an intergenerational model with human capital of inequality and development. The existence of a trap in the process of human capital accumulation generates multiplicity of equilibria and permits the inclusion of social mobility in the analysis. The model is able to explain how IO and IE affect human capital accumulation and hence ongoing long-run growth. The existence of social mobility in society makes the relationship between income inequality and growth to be non-linear, and the final sign of the in fluence of inequality on growth to be dependent on the degree of development and overall inequality of the economy. We find that IE is generally benefi cial to human capital accumulation and, therefore, to ongoing growth, while IO positively affects human capital (income) only for less developed economies