An Endogenous Growth Model with Productive Public Spending and Uncertain Lifetime Consumers.

This paper deals with the effects of productive public spending on long-term economic growth within an endogenous growth model with uncertain lifetime consumers in the presence of lump-sum transfers, public consumption and investment subsidies. A flexible framework capable of analysing the steady state effects of fiscal policy in both infinite and finite horizons cases is provided. The Barro rule for the optimal provision of public investment is extended to the finite horizons case. Such a modified Barro rule is lower than the Barro Rule and decreasing in the probability of death parameter. The negative effect on the balanced growth rate of an increase in non-productive public spending is found in the finite horizons as well as in the infinite horizons case. However, increases in either public consumption or lump-sum transfers to households are found to be less effective in reducing long-term economic growth under the assumption of uncertain lifetime consumers. The condition under which the government needs to increase public investment in the presence of either higher transfers to households or higher public consumption is derived. Finally, an optimal rule for investment subsidies provision is analytically derived under the assumption of uncertain lifetime consumers.

Drivers of regional efficiency differentials in Italy: technical inefficiency or allocative distortions?

This paper estimates regional economic efficiency differentials at the firm level in the Italian manufacturing sector over the period 1998-2003. We implement an input distance function approach providing measures of both technical inefficiency and allocative distortions in the choice of input mixes. Our results confirm the substantial technical efficiency gap suffered by firms located in Southern regions, thus providing empirical support to the “structural and technological gap” interpretation of the Italian dualism. On the other hand, allocative distortions in the use of inputs show less remarkable regional differences. As for policy implications, our results suggest the need for a re-allocation of public resources for development policies from business incentives measures towards public investments.Technical and allocative efficiency, Input distance function, Development policies

Proximity and Innovation in Italian SMEs

Abstract: In this paper we assess the relevance of both knowledge creation and diffusion processes in affecting Italian SMEs’ propensity to innovate. In doing so a knowledge production function (KPF) is estimated for a representative sample of small and medium manufacturing firms over the period 1998-2003. To account for endogeneity of R&D effort in the KPF, we estimate a Heckman selection model on R&D decisions and obtain two main results. First, we do not find the probability of being engaged in intramural R&D activities to be significantly related to firm size. Second, for those firms engaged in R&D activities, the intensity of R&D effort increases with firm size. Then, the KPF is estimated for three different samples of firms using a standard probit where the probability that SMEs will innovate depends upon intramural R&D effort, regional and industrial spillovers and a vector of interaction and control variables. The main results obtained from this second set of regressions are the following: first, we find the probability to innovate to be positively related to sectoral spillovers, the magnitude of such impact being decreasing in firms’ size. Second, knowledge diffusion via geographical proximity enhances the probability of the recipient firm to innovate only if it has an appropriate endowment of human capital.Innovation, knowledge, spillovers, firm size

Productive Public Expenditure in a New Economic Geography Model

We assess whether and how differences in productive public expenditure impacts on industrial location. Since productive public expenditure and taxation affect in opposite direction industrial location, it is not straightforward that following an increase in productive public expenditure in a region, that region will necessarily enjoy stronger agglomeration. As a major contribution to the literature, we consider jointly two effects arising from public policy: the demand effect and the productivity effect. The interplay of these two effects determines the final impact on the spatial distribution of firms. The result is influenced by the proportion in which tax payers of the two regions contribute to the financing of public expenditure.economic geography; public expenditure, footloose capital

Economic integration and agglomeration in a customs union in the presence of an outside region

New Economic Geography (NEG) models do not typically account for the presence of regions other than the ones involved in the integration process. We explore such a possibility in a Footloose Entrepreneur (FE) model aiming at studying the stability properties of long-run industrial location equilibria. We consider a world economy composed by a customs union of two regions (regions 1 and 2) and an "outside region" which can be regarded as the rest of the world (region 3). The effects of economic integration on industrial agglomeration within the customs union are studied under the assumption of a constant distance between the customs union itself and the third region. The results show that higher economic integration does not always implies the standard result of full agglomeration of FE models. This incomplete agglomeration outcome is due to the fact that the periphery region keeps a share of industrial activities in order to satisfy a share of "external demand". That is, the deindustrialization process brought about by economic integration in the periphery of the union is mitigated by the demand of consumers living in the rest of the world. In general, the market size of the third region affects the number of the long-run equilibria, as well as their stability properties. In addition to the standard outcomes of FE models, we describe the existence of two asymmetric equilibria characterised by unequal distribution of firms between regions 1 and 2, with no full agglomeration though. Interestingly, these equilibria are stable and therefore can be regarded as a likely long-run equilibrium state of the economy. (author's abstract)Series: Department of Economics Working Paper Serie

Measuring the Shadow Economy with the Currency Demand Approach - A Reinterpretation of the methodology, with an application to Italy

We contribute to the debate on how to assess the size of the shadow economy by proposing a reinterpretation of the traditional Currency Demand Approach (CDA) a là Tanzi. In particular, we introduce three main innovations. First, we take a direct measure of cash transactions (the flow of cash withdrawn from bank accounts relative to total noncash payments) as the dependent variable in the money demand equation. This allows us to avoid using the Fisher equation, overcoming two severe critiques to the traditional CDA. Second, we include among covariates two distinct measures of ‘detected’ tax evasion, in place of the tax burden level. Finally, we control also for a new ‘criminal’ component of the shadow economy, considering money demand for illegal activities like drug dealing and prostitution. We propose an application of this ‘modified – CDA’ to a panel of 91 Italian provinces for the years 2005-2008.Shadow economy, Currency demand approach, Cash transactions, Evasion, Crime

Regulatory and Environmental Effects on Public Transit Efficiency. A Mixed DEA-SFA Approach

The aim of this paper is to account for the impact of statistical noise and exogenous regulatory and environmental factors on the efficiency of public transit systems in a DEA-based framework. To this end, we implement a three-stage DEA-SFA mixed approach based on Fried et al. (2002) using a 1993-1999 panel of 42 Italian public transit companies. This allows us to decompose input-specific DEA inefficiency measures into three components: exogenous effects, pure managerial inefficiency, and statistical noise. First, the initial evaluation of producer performance is carried out using conventional variable returns to scale DEA (Banker et al., 1984). Second, a SFA approach (Battese and Coelli, 1992) is used to regress single input slacks on subsidies regulation (cost-plus versus fixed-price contracts) and a set of environmental variables including network speed and user density. Finally, third stage re-runs DEA on inputs purged of both exogenous effects and statistical noise. Results are such that adjusting for the type of regulatory scheme, environmental conditions, and statistical noise increases average efficiency in the industry and reduces dispersion among firms. Furthermore, the implementation of fixed-price subsidies is found to enhance efficiency in the usage of “drivers” and “materials and services” inputs. Such a result sheds some light on the determinants of input-specific efficiency differentials in the industry, improving the existing evidence on mean overall cost efficiency (e.g. Gagnepain e Ivaldi, 2002; Piacenza, 2006). As a policy implication, it is confirmed the relevance of regula tion aimed at replacing cost-plus subsidization mechanisms with high-powered incentive contracts as well as improving operating conditions of public transport networks.Public transit systems, Regulation, Environmental effects, Statistical noise, Data Envelopment Analysis (DEA), Stochastic Frontier Analysis (SFA)

Essays on growth, productivity and public capital

EThOS - Electronic Theses Online ServiceGBUnited Kingdo

Credit constraints for SMEs in the Italian Mezzogiorno: which role for Mutual Loan-Guarantee Consortia?

This paper focuses on the perspective role of Mutual Loan-Guarantee Consortia (MLGC) in mitigating credit constraints for SMEs located in the Italian Mezzogiorno. First, we argue how the functioning of MLGC fits into the theory of bank-firm relationships, also referring to the scarce empirical evidence on the issue. Second, we evaluate the weakness – in terms of size, volume of activity, patrimonial requirements and guaranteed loans – of the Southern MLGC system. We then provide insights on the impact of the novelties introduced by the New Basel Capital Accord (Basel II) on MLGC’s activity. Finally, we conclude for the need of public support to MLGC in the Mezzogiorno in order to enhance their function of facilitating the matching of demand and supply in the credit market.Consorzi Fidi, razionamento del credito, Mezzogiorno, rapporto banca-impresa

Drivers of regional efficiency differentials in Italy: technical inefficiency or allocative distortions?

WP 02/2008; This paper estimates regional economic efficiency differentials at the firm level in the Italian manufacturing sector over the period 1998-2003. We implement an input distance function approach providing measures of both technical inefficiency and allocative distortions in the choice of input mixes. Our results confirm the substantial technical efficiency gap suffered by firms located in Southern regions, thus providing empirical support to the “structural and technological gap” interpretation of the Italian dualism. On the other hand, allocative distortions in the use of inputs show less remarkable regional differences. As for policy implications, our results suggest the need for a re-allocation of public resources for development policies from business incentives measures towards public investments