Growth with perfect capital movements in CES: US Debt Dynamics and model estimation

We derive the central differential equation of the neoclassical growth model for the case of a CES (constant elasticity of substitution) production function with perfect capital movement in terms of the debt/GDP ratio and estimate it in several ways for the United States and in a later step the whole model. Debt data are derived from the accumulation of differences between investment and we show that then valuation effects play a minor role. The result is that the US debt/GDP ratio follows the pattern of a stable differential equation, which will lead to a long-run debtor position. The debt/GDP ratio will approach a value between 50% and 60% (depending on the specification used) unless a structural break increases the world interest rates or, similarly, US spreads reduce the US demand for foreign debt. A value of 50% will be achieved around 2040. We also find short-run deviations from this long-run path, which are characterized by non-sustainable explosive debt growth. These phases are characterized by high interest rates and followed by devaluations of the dollar. Our simple method allows detecting such phases early on. The estimation of the whole model yields an elasticity of substitution for capital and labour of .155 with autocorrelation correction (and 1/3 without), a growth rate of labour-augmenting technical change of 1.65% (1.5%) and a corresponding initial level of labour productivity as of 1959 of about 350 (320).international economics and trade ;

Net-immigration of developing countries: The role of economic determinants, disasters, conflicts, and political instability

We provide regressions for the net immigration flows of developing countries. We show that (i) savings finance emigration and worker remittances serve to make staying rather than migrating possible; (ii) lagged dependent migration flows have a negative sign in the presence of migration stock variables; (iii) stocks of migrants in six OECD countries and in the developing countries have non-linear effects. Some of the non-linear effects vanish if indicators for disasters, conflicts and political instability are taken into account.migration, remittances, disasters, conflicts, political instability

Worker remittances, migration, accumulation and growth in poor developing countries

The impact of migration and worker remittances on literacy, accumulation of capital and growth is analyzed for a panel of countries with per capita income below $1200 (2000). We estimate regressions for dynamic equations of migration, worker remittances, savings, investment, tax revenues, public expenditure on education, interest rates, literacy, labour force growth, development aid and GDP per capita growth, using dynamic panel data methods. The estimated equations are then integrated to a dynamic system that allows for simulations using the whole integrated system allowing conceptually for the open economy aspects aid, trade, capital movements and migration. The linear-quadratic impact of the income difference between rich and poor countries on remittances and migration generates some highly non-linear results in the baseline simulation. Then we analyze the counterfactuals "remittances send only 50%" or "no net migration". The results for the direct effects are that emigration lowers savings and labour force growth. The total effect of net migration on GDP per capita is to increase the growth rate until 2150 and the effect on levels runs up to 7% above the baseline value. Remittances enhance savings, public expenditures on education and growth, but reduce tax revenues and emigration. These latter two effects, however, are outweighed by the indirect effect of remittances on savings, which have a strongly positive impact on tax revenues and emigration, indicating that conclusions from single equation regressions maybe misleading and indirect effects may dominate for some variables or strongly reduce the direct effects. The total effect of remittances on levels and growth rates of GDP per capita, investment and literacy are positive.migration, remittances, growth, capital accumulation

Worker remittances and government behaviour in the receiving countries.

We estimate the impact of worker remittances on savings, taxes, and public expenditures on education, all as a share of GDP, for about thirty years in two samples of countries with per capita income above and below $1200 using dynamic panel data methods. Governments of the poorer sample raise less taxes in the short run but more in the long run and spend more money on education when remittances come in; in the richer sample they raise less taxes and spend less on education in response to remittances but this is almost completely compensated by the positive response of expenditure on education to higher savings, which results from remittances as well.Remittances, Tax Revenue, Government Expenditure, Education

Reconciling environmental policy with employment, international competitiveness and participation requirements

We argue that a conventional double dividend policy - defined as reduction of greenhouse gas emissions and unemployment through taxation of energy and CO2 emissions and subsidization of wage costs - and the aim of keeping international competitiveness intact are mutually exclusive concepts. It is suggested that a double dividend policy that aims at reducing GHG emissions and unemployment without violation of international competitiveness has to tax energy use and CO2 emissions of households and should use the revenues to subsidize investment in energy-saving technologies to reduce marginal costs of firms. Reduction of energy coefficients lowers marginal costs and prices and therefore increases competitiveness and employment in an environmentally friendly way and may induce other parts of the world to participate in GHG emission reduction policies. According to this proposal the principle of causation has to be dropped nationally but not internationally.international economics and trade ;

How to Apply Trade Theory to the German Unification? Making sense of 'comparative advantage in nothing'

not availableinternational economics and trade ;

Green Tax Reform, marginal revenue of wage income taxes, and the wage curve: A brief note

Schneider (1997) showed that the success of a green tax reform depends crucially on a smallslope of the wage curve of an efficiency wage model in which production occurs using a secondfactor E, energy or emissions. Scholz (1998) revealed that there is a second necessary conditionthat the marginal revenue of the wage income tax is negative. In this note we show that (i) thesetwo conditions are not independent, but rather depend both on the slope of the wage curve; and(ii) if Schneider’s condition of a sufficiently flat wage curve is fulfilled, marginal revenue ofwage income taxes must be negative. By implication, both the green tax reform and the sign ofthe marginal revenue of wage income taxes depend on the slope of the wage curve which allowsto distinguish three cases of a tax reform: a) a double dividend for a very small slope of the wagecurve (Schneider’s case); b) failure of unemployment reduction (Scholz’ case) for a very steepwage curve; c) failure of emission reduction for an intermediate case of a wage curve slope.Economics ;

Monopolistic Competition and Search Unemployment: A Pissarides-Dixit-Stiglitz model

We integrate two workhorse models in economics: The monopolistic competition model of Dixit and Stiglitz and the search unemployment model of Pissarides. Many results of the original models survive. New results concerning the effects of changes in labour (goods) market parameters on goods markets (the labour market) variables are obtained and compared to the literature.economics of technology ;

Monopolistic Competition, Search Unemployment, and Macroeconomics

The monopolistic competition model of Dixit and Stiglitz for the goodsmarket and the search unemployment model of Pissarides are combined ThePissarides part looses its Walrasian goods market and the Dixit-Stiglitz part looses itsWalrasian labour market. Pissarides’ results now also depend on the degree ofcompetition and in the Dixit-Stiglitz part the size and number of firms as well asaggregate output now also depend on aggregate hiring costs, tightness andunemployment, and real wages are not fixed. Some partial results of comparativestatic properties of the original models survive. New results concerning the effects ofchanges in labour (goods) market parameters on goods markets (the labour market)variables are obtained and compared to the literature on macroeconomic theory,empirical results and policy issues.macroeconomics ;

Creation and Destruction of Comparative Advantage by Public Investment in the Transport Infrastructure of Transit Economies and by Environmental Taxes

In this paper we show conditions under which the accumulation of public infrastructure capital over time may create the comparative advantage of the production of transport services and destroy that of the production of goods in a market equilibrium of a transit economy. We also show conditions under which it will not change comparative advantage. Moreover, we also show the conditions under which an environmental tax on pollution from transport will shift the specialization back to the production of goods. In the model used, specialization is determined by: the productivity of the sectors; the transit volume; the taxes raised for the use of roads; the world market prices of goods and transport services; and environmental taxes. Gains from trade are analysed and comparative-static properties of globalization and tax policy are discussed.public economics ;