the dynamic effects of government spending policies in a two sector endogenous growth model this paper investigates the impact of government spending policies in a two sector model of endogenous growth endogenous growth arises because all factors of production physical and human capital are reproducible both temporary and permanent government spending shocks are examined the model implies that a permanent lump sum financed increase in government spending raises the long run growth rate this occurs because the negative wealth effects of a spending increase will increase labor supply on the other hand an income tax or wage tax financed rise in government spending reduces the growth rate the output effects of a temporary increase in government spending may be greater or less than a permanent increase in spending copyright 1995 by ohio state university press

a search theoretic model of legal and illegal currency abstract using a search theoretic model of money we explore the conditions under which two currencies domestic and foreign will co exist despite legal restrictions on the use of foreign currency for internal trade we study how changes in government policy i e its enforcement of currency laws through fines or the rate of enforcement affects the acceptability of illegal currency the equilibrium value of both currencies and the implicit exchange rate first we construct a model with indivisible goods to show conditions under which legal currency is fully acceptable but illegal currency circulates with varying acceptability we then introduce bargaining to determine prices in legal and illegal currency we show that some enforcement polices can create multiple equilibria while others will not also some methods of enforcement are capable of driving the illegal currency out of circulation while others are not

supply side interventions and redistribution we evaluate the eect on welfare of shifting the burden of capi tal income taxes to labor taxes in a dynamic equilibrium model with heterogeneous agents and constant tax rates we calibrate and simu late the economy we nd that lowering capital taxes has two eects i it increases e ciency in terms of aggregate production and ii it redistributes wealth in favor of those agents with a low wage wealth ratio when the parameters of the model are calibrated to match the distribution of income in terms of the wage wealth ratio the redis tributive eect dominates and agents with a high wage wealth ratio would experience a large loss in utility if capital income taxes were eliminated

a new monetarist model of fiat and e money we develop a dual payment new monetarist model where an electronic money e purse competes with fiat money cash the two payment instruments differ in terms of security cost and acceptability strategic complementarities lead to multiple monetary equilibria we establish the conditions under which e money can coexist with or replace fiat money and explain the reasons for the e purse failure success in a few countries we also compare welfare when one currency or both circulate when the risk of theft of cash is endogenous e money cannot replace cash entirely however low inflation can facilitate the adoption of e money in parallel with fiat money jel d83 e40 e50

increasing the capital income tax may lead to faster growth this paper shows that under rather mild conditions higher capital income taxes lead to faster growth in an overlapping generations economy with endogenous growth government expenditures are financed with labor income taxes as well as capital income taxes since capital income accrues to the old taxing it reliefs the tax burden on the young and leaves them with more income out of which to save we argue that savings are sufficiently interest inelastic so that higher savings and therefore higher growth result the basic argument is not seriously challenged by a grandfather clause for initial capital or by the old receiving some labor income as well the reasoning is similar to feldstein 1978 auerbach 1979 and in particular jones and manuelli 1992 but in contrast to the conventional wisdom about the effect of capital income taxation as say in lucas 1990

credible public policy abstract credible public policy is defined in a way that incorporates competitive equilibrium behavior for households and subgame perfect nash equilibrium behavior for the government it is shown that the set of all equilibrium outcome paths for credible policies can be constructed by using arguments analogous to those of abreu 1988 for repeated games the results are then extended to systems with state variables simple models of monetary policy and capital taxation are studied by way of example

fiscal policy and growth in a small open economy with elastic labour supply endogenizing labour supply leads to fundamental changes in the equilibrium structure of the ak growth model of a small open economy the balanced growth equilibrium is described by two tradeoff loci relating the equilibrium growth rate to the fraction of time devoted to leisure the implications of endogenous labour supply for fiscal policy are addressed the effects of distortionary taxes and government expenditure on the equilibrium growth leisure employment tradeoff are analysed the responses contrast with both those of a closed economy having an elastic labour supply and an open economy with fixed labour supply optimal fiscal policy is also characterized jel classification f41 f43 politique fiscale et croissance dans une petite economie ouverte quand l offre de travail est elastique l endogeneisation de l offre de travail entraine des changements fondamentaux dans la structure d equilibre du modele de croissance du type ak d une petite economie ouverte l equilibre de croissance balancee est decrit par deux lieux de relations d equivalence reliant le taux de croissance d equilibre a la fraction du temps allouee au loisir on examine les implications de cette endogen6isation de l offre de travail pour la politique fiscale on analyse les effets de taxes distorsionnantes et des depenses gouvemementales sur la relation d 6equivalence entre taux de croissance et loisir et donc emploi on obtient des reactions differentes de celles qu on obtient en economie ferm6e quand l offre de travail est elastique et en economie ouverte quand l offre de travail est fixe on proc ede alors a la definition de la politique fiscale optimale

on the launching of a new currency this paper studies the appropriate way of launching a new fiat currency within a dual currency search theoretic framework we demonstrate that legal tender laws may not be sufficient to guarantee the acceptability of the new currency and that the old currency may continue to circulate if the enforcement power of legal tender laws is weak and the fraction of individuals endowed with the new currency is too low the possibility of converting the old currency into the new one can ease the transition to the new currency only if it is combined with strict legal tender laws finally a network externality may generate inefficiencies in the decision to switch to the new currency

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

public spending on education and the incentives for student achievement we build a model where homogeneous workers can accumulate human capital by investing in education schools combine public resources and individual effort to generate productive skills if skills are imperfectly compensated then in equilibrium students may under invest in effort we examine the effect on human capital accumulation of three basic education finance policies increased tuition subsidies may not be beneficial because they increase enrolment but they may lower the incentives for student achievement hence the skill level policies directed at enhancing the productivity of education or making degrees more informative are more successful at improving educational outcomes

the susan b anthony dollar and the theory of coin note substitutions this paper analyzes governments attempts to replace circulating notes with coins it argues that because of network externalities in currency systems a government cannot simply offer a new coin such as the susan b anthony dollar to the public and expect it to circulate even when the coin note substitution would benefit the economy for such a substitution to succeed a government may need to force the adoption of the coin by withdrawing the competing bill from circulation copyright 1994 by ohio state university press

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

on the ineffectiveness of tax policy in altering long run growth harberger s superneutrality conjecture abstract in 1964 harberger conjectured that although theory predicts that changes in tax rates affect investment and growth in the long run in practice tax policy is an ineffective instrument to influence growth this paper provides theoretical and empirical evidence in favor of this view the growth effects of tax policy in the class of endogenous growth models driven by human capital accumulation are examined and numerical simulations of these models confirm the results harberger predicted cross country panel regressions estimated using a new method for measuring effective tax rates produce significant investment effects from taxes that are consistent with negligible growth effects these results are robust to the introduction of other growth determinants

optimal factor tax incidence in two sector human capital based models abstract this paper studies the optimal factor tax incidence in a standard two sector human capital based endogenous growth model elucidated by lucas 1988 capital income taxes generate dynamic inefficiency for capital accumulation and labor income taxes create dynamic inefficiency for human capital accumulation a factor tax incidence is a tradeoff between these two inefficiencies a switch from capital income taxes to labor income taxes reduces the long run welfare coming from lower leisure and increases the long run welfare originated from higher economic growth and higher consumption because the representative agent s learning time and human capital are inseparable and thus affect learning activities at the same degree we find that based on the current us income tax code it is optimal to first tax capital income and to resort to taxing labor income only when tax revenue is insufficient to cover government expenditure

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

the effect of taxation on human capital this study finds a significant negative effect of proportional income taxation on human capital of the few earlier studies to address this issue most suggested a negligible effect of taxation on investment in human capital this earlier conclusion is shown to be incorrect by using a model that is more general in several respects than the models used previously

on the taxation of human and physical capital in models of endogenous growth abstract this paper studies the effects of factor income taxation and of subsidies to human capital accumulation in models of endogenous growth it examines in particular how these effects depend on the specification of the leisure activity and on the technology and tax treatment of the sector producing human capital it shows that the negative effects of factor income taxes on economic growth are stronger when the human capital sector is a market good under these circumstances a subsidy to human capital accumulation can offset the direct growth effects of labor taxation making it akin to a consumption tax the paper then briefly discusses the normative implications of the analysis for the optimal taxation of factor incomes

currency exchange in a random search model this paper investigates foreign exchange trading a phenomenon that typically accompanies international trade a search theoretic general equilibrium approach is adopted to study a two country two currency model for some parameter values of the model there exist some pure strategy equilibria in which commodity currency trade is conducted primarily through local currency and in which there is active currency currency exchange the coexistence of valued foreign currency and its local non acceptability conforms largely with the country specific cash in advance constraint that is often assumed exogenously in international finance literature

the impact of ceta programs on earnings a review of the literature this paper reviews and assesses evaluations of the comprehensive employment and training act ceta programs most of the studies found that the programs raised earnings by 200 to 600 annually in current dollars the programs were found to be more effective for women than men and public service employment and on the job training were generally found to be more effective activities than classroom training and work experience in spite of the broad overall agreement the studies differed significantly in many of their specific impact findings the nonexperimental nature of the data required the studies to make specific assumptions about selection procedures used to determine which individuals received training and the results are sensitive to the specific measures adopted data limitation and the inability to adequately test the validity of selection processes assumed make it impossible to determine which studies modeled the process correctly

toward a theory of international currency we use the framework of random matching games and develop a two country model of the world economy in which two national currencies compete and may be circulated as media of exchange there are multiple equilibria which differ in the areas of circulation of the two currencies in one equilibrium the two national currencies are circulated only locally in another one currency is circulated as an international currency there is also an equilibrium in which both currencies are accepted internationally we also find an equilibrium in which the two currencies are directly exchanged we first characterize the existence conditions of these equilibria in terms of the relative country size and the degree of economic integration and then use an evolutionary approach to equilibrium selection to explain the evolution of the international currency as the two economies become more integrated some welfare implications are also discussed for example a country can improve its national welfare by letting its own currency circulate internationally provided the domestic circulation is controlled for when the total supply is fixed however a resulting currency shortage may reduce the national welfare

the political economy of bitcoin i introduction on october 14 2013 baidu a web services company that runs the largest search engine in china began accepting bitcoin this single action opened the bitcoin network to roughly 570 million internet users in china and prompted other internet companies to consider the cryptocurrency more seriously the closing price of bitcoin which averaged just 124 over the 2 week period prior to the announcement increased to 170 over the 2 week period following the announcement 1 as the demand for bitcoin increased the authorities took notice the people s bank of china issued a statement on december 5 2013 prohibiting financial institutions and payment companies from buying selling quoting prices in or insuring products linked to bitcoin baidu stopped accepting bitcoin the very next day china is not the only user although the network of bitcoin users is relatively small at present and economists are for the most part skeptical that bitcoin will ever gain widespread acceptance the rapid growth of the bitcoin network has prompted some governments to ban or discourage the use of bitcoin 2 government officials seem to worry that bitcoin which offers a secure and quasi anonymous way to make digital payments will be used for illicit transactions and will impede the administration of monetary policy or raising revenues in some important respects the legal issues surrounding bitcoin echo older debates the idea that governments issue money and declare what qualifies as legal tender is an ancient notion middlebrook and hughes 2014 848 explain the history of regulating money and legal tender suggests that it is not likely that governments will surrender their privileges to regulate cryptocurrency issuers exchanges administrators or users can a government successfully prevent bitcoin transactions in what follows we consider whether government transactions policy would eliminate the use of bitcoin or simply relegate its use to areas effectively beyond the reach of government e g black markets small value exchange etc using a monetary model with endogenous search and random consumption preferences developed by hogan and luther 2014 we articulate the conditions under which a government issued currency and bitcoin might coexist as well as the conditions under which one or neither of the different forms of money circulate then we impose a government transactions policy whereby those agents controlled by the government refuse to accept bitcoin as payment and examine the effects of this policy on the circulation of bitcoin the model employed herein combines insights from kiyotaki and wright 1993 in which agents are matched randomly for trade and corbae et al 2003 in which agents deliberately choose with whom to trade agents in the model deliberately choose with whom to trade but are then subject to random consumption preferences one way to think of this assumption is that agents who wish to consume arrive at a place where they would like to make a purchase but might decide not to buy anything although the decision to buy is random the choice of where to shop is not 3 allowing agents to choose their trading partners means that some transactions might exist beyond the reach of government the use of a government transactions policy follows from aiyagari and wallace 1997 and li and wright 1998 others have used government transactions policies to consider the implications of competing money assets however our analysis differs from previous works in important ways for example lotz and rocheteau 2002 consider whether a government transactions policy can support the launch of a new currency they use a random matching model and only consider a transactions policy that compels agents to hold government issued money similarly waller and curtis 2003 consider the use of government transactions policy in the context of competing international currencies

a two sector model of endogenous growth with leisure in this paper we analyze a class of endogenous growth models with physical and human capital and with three altematives uses of time unqualified leisure work and education in contrast to some other related models we find that even in the absence of technological extemalities there could be multiple balanced paths we provide a characterization of the qualitative behavior of consumption leisure work and education over those balanced paths and study their transitional dynamics

income taxes public investment and welfare in a growing economy abstract in a growth model with public capital and a spillover externality from private capital we find that income taxes as part of an optimal fiscal policy is a more common result than usually thought the commitment to finance an exogenous component of public expenditures in the form of an exogenous fraction of output may lead to the optimality of positive income taxes this result is robust to alternative assumptions on depreciation rates and preferences we show that welfare losses from deviations from the optimal policy are always smaller when compensated with changes in income taxes than when adjusting lump sum taxes

dynamic optimal taxation in small open economies abstract this paper examines the effects of perfect capital mobility on the determination of optimal capital taxation it shows that capital movements do not change dramatically the optimal tax path studied for the closed economy in addition the paper provides a counterexample to the standard belief that the worldwide system is the optimal regime of taxation finally it shows that the rate of taxation of the rest of the world is not fundamental to determine the optimal decision of a small economy

public schooling college subsidies and growth abstract how does the mix of public education expenditures across primary and secondary k 12 education and post secondary college education influence economic growth to address this i build an overlapping generations endogenous growth model human capital is accumulated through compulsory k 12 education and through optional college education government uses tax revenue to provide quality in k 12 schooling and to subsidize college tuition when total expenditures are small all funds should provide k 12 quality when expenditures are above a critical value a positive share should subsidize tuition the share should increase with total expenditures and with the degree of complementarity of human capital accumulated through the two types of education also increased education spending is more likely to increase growth when a larger share subsidizes tuition

from the static to the dynamic some problems in the theory of taxation abstract this paper considers problems and issues that arise when we attempt to extend the static theory of taxation and production planning to a dynamic context and to combine that theory with theories of growth the reasons dynamic theory is less developed include problems with the analytical tractability of even those dynamic models which attempt to retain the basic structure of the static model furthermore difficult and interesting issues arise in a dynamic context which are either not present or are much less severe in the static theory special attention is paid to these new issues and the difficulties they pose

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

introducing a new currency government policy and prices abstract the aim of this article is to study the introduction of a new fiat currency within a dual currency divisible goods search model the government using price control or legal tender laws can affect the equilibrium price levels of two domestic currencies with the goal of driving the old currency out of circulation and replacing it with a new one it is shown that some equilibrium solutions that exist in a laissez faire environment disappear with government monitoring additionally when the old currency is made illegal its equilibrium value is affected differently by public measures such as conversion tax and redistribution policies finally if the enforcement power of legal tender laws is strong enough the old currency cannot be more valuable than the new one and the probability that it changes hands in trade when introducing lotteries cannot be smaller than one

finite lifetimes and growth abstract in this paper we study the long run growth property of overlapping generations models it is shown that in one sector models with convex technologies the asymptotic growth rate must be zero this results because the young do not have sufficient income to purchase a large capital stock thus a policy of income redistribution to the young can generate growth even if financed by income taxation additionaly it is shown that two sector models and one sector models with nonconvex technologies are consistent with growth

tax structure and growth in a model with human capital abstract the effect of the tax structure on the long run growth rate of income and consumption is analyzed where tax structure refers to the mix of taxes on physical and human capital which satisfy an exogenously given government budget constraint the factor used intensively in the consumption good sector relative to the capital goods sector as a whole is taxed more highly in a growth maximizing tax structure an endogenous labor supply the tax treatment of depreciation and the effect of replacing the income tax with a consumption tax are all considered

fiscal policy inflation and the accumulation of risky capital the effect of government policies on the level of investment and inflation has become a major concern of policy makers in a number of industrial countries proposals to raise the level of business investment have included overall tax cuts tax incentives to spur investment and a reduction in the level of government spending this paper presents a theoretical apparatus to explore the relationships between fiscal policy government debt inflation and capital accumulation it develops a one sector growth model embodying a stochastic production function and government fiscal policy atomistic agents in the economy choose consumption levels and allocate their wealth between risky capital and risky government debt to maximize expected discounted utility over an infinite horizon fiscal policy by affecting asset yields affects the composition of portfolios the price of government bonds and the accumulation of capital the model is used to answer three general questions 1 does the level of government expenditure affect the rate of capital accumulation and inflation in steady state 2 does the mode of government finance when the choice is between an income tax and deficit finance affect these magnitudes 3 what is the effect of uncertainty in the productivity of capital on growth the analysis relates to several areas of literature 1 the analysis of the relationship between capital accumulation and debt 2 the theory of the demand for government debt 3 considerations of the effect of income taxation on risk bearing and 4 the analysis of capital accumulation under uncertainty 1 the effects on output and the capital stock of the government s expenditure decision and its decision to finance its expenditure by taxation or debt issue are explored in two major bodies of economic theory the literature on the burden of the debt as developed by modigliani 1961 diamond 1965 and phelps and shell 1969 for example implies that policies which increase the value of outstanding government debt will tend to lower the level of the capital stock by displacing capital with public debt in private wealth the theory of money and growth as represented by tobin 1965 and sidrauski 1967b also implies that government debt displaces capital but specifically recognizes the role of capital gains on government debt

factor income taxation and growth under asymmetric information abstract this paper studies the growth effects of factor income taxation on capital and labor in an endogenous growth model with overlapping generations capital accumulation in our model takes place through credit financed investments in a market with asymmetric information between lenders and borrowers we show that in the presence of asymmetric information capital income taxation worsens the adverse selection problem in the credit market which in turn introduces an additional adverse effect on growth in so doing our analysis provides a new argument in favor of a lower higher capital labor income taxation in funding public expenditures

transitional dynamics in two sector models of endogenous growth the steady state and transitional dynamics of two sector models of endogenous growth are analyzed in this paper we describe necessary conditions for endogenous growth the conditions allow us to reduce the dynamics of the solution to a system with one state like and two control like variables we analyze the determinants of the long run growth rate we use the time elimination method to analyze the transitional dynamics of the models we find that there are transitions in real time if the point in time production possibility frontier is strictly concave which occurs for example if the two production functions are different or if there are decreasing point in time returns in any of the sectors we also show that if the models have a transition in real time the models are globally saddle path stable we find that the wealth or consumption smoothing effect tends to dominate the substitution or real wage effect so that the transition from relatively low levels of physical capital is carried over through high work effort rather than high savings we develop some empirical implications we show that the models predict conditional convergence in that in a cross section the growth rate is predicted to be negatively related to initial income but only after some measure of human capital is held constant thus the models are consistent with existing empirical cross country evidence authors

currency competition network externalities and switching costs towards an alternative view of optimum currency areas existing models of currency competition and monetary union ignore network effects and switching costs this paper develops a simple model that incorporates these features and shows how it can be used to shed light on observed monetary experience and current issues in international monetary relations it explains why agents will often be reluctant to switch currencies highlights the role of expectations and sheds light on the nature of currency competition and the effect of legal restrictions copyright 1993 by royal economic society

average marginal tax rates from social security and the individual income tax we extend previous estimates of the average marginal tax rate from the federal individual income tax to include social security our computations consider the tax rates on employers employees and the self employed the income that accrues to persons with earnings below the ceiling and the effective deductibility of employers social security contributions from workers taxable income the next effect of social security on the average marginal tax rate is below 02 until 1966 but then rises to 03 in 1968 04 in 1973 05 in 1974 06 in 1979 and 07 in 1982 this abstract was borrowed from another version of this item

on the optimal taxation of capital income abstract we show that in models in which labor services are supplied jointly with human capital the chamley and judd result on zero capital income taxation in the limit extends to labor taxes as long as accumulation technologies are constant returns to scale moreover for a class of widely used preferences consumption taxes are zero in the limit as well however we show by the construction of two examples that these results no longer hold for certains types of restrictions on tax rates or if there are profits generated journal of economic literatureclassification numbers e62 h21

supply side economics and endogenous growth abstract in a simple convex model of endogenous growth the expansionary effects of a deficit financed tax cut are often strong enough to allow the government debt to be paid off in the long run without the need for subsequent tax increases a permanent and substantial reduction in marginal rates of income taxation can provide for both vigorous real economic growth and long run government budget balance

life expectancy schooling time retirement and growth i analyze how changes in life expectancy affect retirement age education time and growth rates of economies i set up a continuous time overlapping generations model of endogenous growth with externalities in human capital production i find that increases in life expectancy give rise to first higher retirement ages and second higher education spans a threshold level for life expectancy exists such that per capita growth rates follow an inverted u pattern i introduction in this article i analyze how changes in life expectancy may affect optimal education time retirement age and the growth rates of economies to this end i set up a continuous time overlapping generations growth model with human capital accumulation that i solve numerically the issue of the effects of the reduction in mortality rates and the resulting increases in life expectancy on economic growth rates has been recently addressed in the literature through both empirical and theoretical studies along these lines i focus on human capital acquisition and its transmission across generations as the force driving the growth rate concerning empirical studies the hypothesis that the reduction in mortality rates has caused higher levels of investment in human capital and therefore augmented growth rates is partially supported for various economies thus kalemli ozcan et al 2000 show an increase in life expectancy at birth along with an increase in average numbers of years of schooling in england they claim that after averaging across lower income countries there is apparently a connection between increases in life expectancy at birth and increases in gross secondary school enrollment that is positively connected with higher growth rates observed preliminary data from latin american and caribbean countries show that gross domestic product gdp growth is statistically associated with life expectancy for instance estimates based on data from mexico suggest that for any additional year of life expectancy there will be an additional 1 increase in gdp 15 years later see world health organization 1999 box 1 2 9 along the same lines rodriguez and sachs 1999 also find a positive effect of life expectancy on gdp growth for the case of venezuela barro and sala i martin 1995 estimate for a sample of 97 countries that a 13 year increment in life expectancy would increase the per capita growth rate by 1 4 per year they also find however some exceptions where increments in life expectancy have not resulted in higher growth even though all of them exhibited higher schooling levels in the period 1960 85 malmberg 1994 gives another exception higher growth was achieved when middle aged persons were numerous whereas increases in dependent age groups led to lower per capita growth in sweden finally some other studies find mixed evidence so that increments in life expectancy result in higher growth rates for low levels of life expectancy but in lower growth rates for high levels of life expectancy see zhang et al 2003 and references therein a common result in most theoretical studies that include some sort of human capital is that an increase in life expectancy lengthens the period needed to recover investment in human capital which translates into higher returns to individual education or human capital investment this augmented return will give rise to higher levels of investment in human capital which in turn will raise growth rates ehrlich and lui 1991 show in a three overlapping generations model how improvements in longevity lower fertility thus raising educational investment and long term growth meltzer 1995 finds that mortality reductions may favor economic growth by increasing educational investment kalemli ozcan et al 2000 show in an overlapping generations model a la blanchard that if mortality drops life expectancy increases so that an augmented life horizon to enjoy the return to human capital investment gives rise to higher schooling human capital investment although growth is not affected because the growth rate in their model is identically equal to zero

government transaction policy the medium of exchange and welfare abstract policy regarding what the government accepts in transactions is embedded in a version of the kiyotaki wright model of media of exchange in an example with two goods and one fiat money the policies that are consistent with fiat money as the unique medium of exchange are identified these policies have the government favoring fiat money in its transactions a benefit and a cost accompany any such policy the benefit is that a worse nonmonetary steady state is eliminated the cost is that a better monetary steady state is eliminated journal of economic literatureclassification number e40

taxation and growth with overlapping generations abstract this paper examines the growth effects of wage and interest income taxation in an endogenous growth model which is characterized by diminishing point in time returns in human capital producing technology and overlapping generations of two period lived individuals we show that the greater the long term learning time of individuals the more individuals inherit human capital from the previous generation we demonstrate that a flat rate wage tax stimulates economic growth while interest income taxation does not necessarily foster such growth intergenerational redistribution induces individuals to change both physical and human capital accumulation affecting the growth rate through changes in factor prices

optimal dynamic carbon taxes in a climate economy model with distortionary fiscal policy how should carbon be taxed as a part of fiscal policy the literature on optimal carbon pricing often abstracts from other taxes however when governments raise revenues with distortionary taxes carbon levies have fiscal impacts while they raise revenues directly they may shrink the bases of other taxes e g by decreasing employment this article theoretically characterizes and then quantifies optimal carbon taxes in a dynamic general equilibrium climate economy model with distortionary fiscal policy first this article establishes a novel theoretical relationship between the optimal taxation of carbon and of capital income this link arises because carbon emissions destroy natural capital they accumulate in the atmosphere and decrease future output consequently this article shows how the standard logic against capital income taxes extends to distortions on environmental capital investments second this article characterizes optimal climate policy in sub optimal fiscal settings where income taxes are constrained to remain at their observed levels third this article presents a detailed calibration that builds on the seminal dice approach but adds features essential for a setting with distortionary taxes such as a differentiation between climate change production impacts e g on agriculture and direct utility impacts e g on biodiversity existence value the central quantitative finding is that optimal carbon tax schedules are 8 24 lower when there are distortionary taxes compared to the setting with lump sum taxes considered in the literature

is public expenditure productive abstract this paper considers the relationship between aggregate productivity and stock and flow government spending variables the empirical results indicate that i the nonmilitary public capital stock is dramatically more important in determining productivity than is either the flow of nonmilitary or military spending ii military capital bears little relation to productivity and iii a core infrastructure of streets highways airports mass transit sewers water systems etc has most explanatory power for productivity the paper also suggests an important role for the net public capital stock in the productivity slowdown of the last fifteen years

the speed of euro adoption this paper estimates the speed and determinants of euro adoption across italian provinces by exploiting the natural experiment in early 2002 when euro and lira dually circulated as legal tender a unique data set with daily observations on the net flows of euro banknotes from the branches of the bank of italy province by province is used the speed of euro adoption differs according to the availability of transaction technology and demographic characteristics lessons for countries adopting a new currency are obtained

growth effects of taxation under altruism and low elasticity of intertemporal substitution an increase in the tax rate on capital income may raise the rate of economic growth when the elasticity of intertemporal substitution is low and intergenerational transfers are absent since the strength of the bequest motive depends on tax rates this paper provides conditions under which taxing capital income and then reducing the labour income tax is more growth enhancing than the classical policy of zero taxes on capital income and vice versa this paper analyses the effects of different taxes on the rate of economic growth we consider an economy in which public spending is a fixed fraction of the gnp and the government can obtain revenues from proportional taxes on both labour and capital income obviously the growth effects of these two instruments will depend on the assumptions made about the economic environment in the standard overlapping generations olg model with production diamond 1965 an increase in capital income taxes allows a reduction in labour income taxes and thus agents will enjoy more income when they are young since in the olg model young agents must purchase the total stock of capital installed in the next period and saving is increasing in young income higher taxes on capital income may lead to faster capital accumulation in order to complete the argument we must ensure that the associated decrease in the after tax interest rate does not lead to a reduction in saving which would outweigh the previous income effect in other words we need a sufficiently low elasticity of intertemporal substitution the argument is thus similar to the one of jones and manuelli 1992 who have already pointed out that if the technological environment makes sustained growth feasible then taxing the old agents and subsidising the young ones may increase the rate of economic growth however the situation is completely different if we consider instead an economic environment in which the life cycle considerations are absent for instance in endogenous growth models with a representative agent or dynasty and infinite life span an increase in the capital income tax rate typically translates into lower growth see for instance sato 1967 feldstein 1974 stiglitz 1978 and the more recent contributions of lucas 1990 and rebelo 1991 a way to give a unified treatment to these two alternative models is by means

on ensuring the acceptability of a new fiat money currency reforms of the type now being contemplated by some former soviet republics aimed at establishing new fiat monies linked to established currencies through fixed exchange rates carry an inherent danger such reforms may by neglecting certain requirements crucial for ensuring the acceptability of a new currency cause it to be treated by the public as so many bits of paper analyzing this problem serves to highlight some shortcomings of patinkin style walrasian monetary ananlysis which ignores money s character as a social institution and downplays the role of expectations in determining a would be money s acceptability thereby giving support to misguided reform efforts in this respect at least some early non walrasian monetary theories are more enlightening copyright 1994 by ohio state university press

a contribution to the pure theory of money abstract this article analyzes a general equilibrium model with search frictions and differentiated commodities because of the many differentiated commodities barter is difficult in that it requires a double coincidence of wants and this provides a medium of exchange role for fiat currency we prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment rate of return dominance liquidity and the welfare implications of fiat money are discussed

on endogenous growth with physical and human capital this paper presents a class of models in which agents may devote part of their nonleisure activities to going to school so as to increase the efficiency units of labor they supply to the firms and the wages they receive the interaction among the technology of human capital accumulation and agents preferences will determine endogenously the economy s rate of growth given a constant returns to scale technology for physical capital accumulation we characterize the set of steady states as a ray from the origin and show the global convergence of every off balanced path to some point on this ray further properties concerning the dynamic evolution of the state and control variables around the ray of steady states are also established our analysis is useful to understand the role played by the technologies of physical and human capital in the process of accumulation and to evaluate the impact of policies geared toward attaining higher levels of capital our results highlight the importance of human capital

factor taxation and labor supply in a dynamic one sector growth model abstract this paper studies a class of ak type growth models with factor income taxes public capital stock and labor leisure trade offs while a higher capital tax rate reduces economic growth in the short run the long term growth effect is ambiguous and remains ambiguous even if the level of tax rate is larger than the degree of government externality a higher labor income tax rate has ambiguous growth effects both in the short and long runs however if the intertemporal elasticity of substitution for labor supply is sufficiently small a higher labor tax rate always lowers economic growth in the long run despite the existence of productive government taxation

the welfare cost of capital income taxation in a growing economy the welfare cost of capital income taxation is analyzed in a general equilibrium framework where the private sector is represented by a competitive household endowed with perfect foresight and an infinite life the value of the welfare cost depends essentially on the elasticity of substitution between capital and labor in the production function numerical estimates are presented for different values of the parameters of the model the welfare gain obtained by the abolition of the capital income tax is smaller when the private sector is not endowed with perfect foresight it is reduced by about 40 percent when expectations are myopic the allocation efficiency cost of the corporate tax dwarfs the intertemporal welfare cost

government transaction policy media of exchange and prices abstract we study government transaction policies in search theoretic models of money we model government as a subset of agents who are subject to the same random matching technology and other constraints as private agents but who behave in an exogenous way regarding which objects they accept in trade and at what price the objective is to see how these policies affect private agents strategies and hence the set of equilibria we analyze how the effects depend on factors like the size of government the intrinsic properties of money and the availability and efficacy of substitutes like barter or foreign currency journal of economic literature classification numbers c78 e31 e42

child support welfare dependency and poverty female headed families have among the highest poverty rates of any major demographic group in the united states the purpose of this paperis to investigate empirically the effectiveness of current child support enforcement policies and to determine their role in reducing poverty and welfare dependency a special supplement to the april 1982 current population survey provides the data for the analysis the results indicate that child support enforce ment may represent an effective means for re ducing welfare program costs but isunlikely to have a dramatic effect on either welfare de pendency or poverty copyright 1986 by american economic association

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

the transition from barter to fiat money how did it become possible to exchange apparently valueless pieces of paper for goods this paper provides an equilibrium account of the transition between barter and fiat money regimes the explanation relies on the intervention of a self interested government that must be able to promise credibly to limit the issue of money to achieve credibility the government must offset the benefits of seigniorage by internalizing some of the macroeconomic externalities generated by the issue of fiat money the government s patience and the extent of its involvement in the economy are key determinants of whether the transition can be accomplished copyright 1995 by american economic association

redistribution and education subsidies are siamese twins abstract we develop models of optimal linear and non linear income taxation with endogenous human capital formation to explore optimal education subsidies optimal subsidies on education ensure efficiency in human capital accumulation and thus play an important role in alleviating the tax distortions on learning induced by redistributive policies if the government cannot verify all investments in human capital education policy offsets some but not all tax induced distortions on learning non pecuniary educational costs benefits may increase decrease subsidies on education especially if they are complementary to work effort

the welfare cost of factor taxation in a perfect foresight model this paper examines the marginal efficiency cost of various factor taxes in a dynamic general equilibrium model the au thor solves for the excess burden of anticipated and unanticipated t emporary and permanent tax policies using a range of estimates for taste and technology parameters he finds excess burdens larger than those indicated by previous studies that use static models these exc ess burdens are sensitive to parameter values and timing however th e rankings of alternative tax policies turn out to be insensitive to structural parameter values copyright 1987 by university of chicago press

factor income taxation and growth with increasing integration of world capital markets abstract in a closed economy the infinite horizon and the overlapping generations og model prescribe diametrically opposite policies on factor taxation the former argues that the growth maximizing capital income tax rate should be set to zero whereas the latter argues that it should be set as high as possible this note investigates the issue by taking into account global capital market integration we show that the long run growth maximizing capital income tax rate in a small open og economy is decreasing as the economy s capital market is increasingly integrated with the rest of the world and will be equal to zero as prescribed in the infinite horizon model once the degree of integration becomes sufficiently high

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

a general two sector model of endogenous growth with human and physical capital balanced growth and transitional dynamics abstract we examine a two sector endogenous growth model with general constant return to scale production technologies governing the evolution of human and physical capital we prove the existence uniqueness and saddle path stability of the balanced growth equilibrium a dual approach drawing on techniques from international trade theory is used to provide complete characterization of the transitional dynamics of consumption goods and education outputs human and physical capital inputs and the relative price of human capital investment we investigate the long run effects of changes in time preference and factor taxation and show the emergence of instability or indeterminacy when factor taxes are too distortionary journal of economic literatureclassification number d90

the growth effects of tax rates in the oecd this paper explores the merits of macro and micro based tax rate measures within an open economy fiscal policy and growth model using annual data for 15 oecd countries we find statistically small non robust long run growth effects of macro based average tax rates on capital income and consumption but some evidence for average labor income tax effects changes in micro marginal income tax rates at both the personal and corporate levels yield statistically robust gdp responses of modest size both domestic and foreign corporate taxes appear relevant in general tax effects on gdp operate largely via factor productivity rather than factor accumulation

policy watch proposals for time limited welfare this paper summarizes the clinton administration s welfare reform proposal and views the available evidence on the effects of time limiting cash assistance and requiring work among long term aid to families with dependent children users the reforms are designed to increase employment among aid to families with dependent children recipients given changes in the labor market for less skilled workers it is not clear that this will increase income among these families the reform proposals would shift antipoverty spending toward work subsidies child support collection efforts and subsidized jobs that support mandated employment it is unclear that this will produce either a cheaper or more effective antipoverty system than the current one

analysis of a two sector model of endogenous growth with capital income taxation this paper addresses a two sector model of endogenous growth in which one sector produces final goods and the other produces new human capital both sectors employ human as well as physical capital under constant returns to scale technologies unlike existing studies of this type of model that have mostly concentrated on steady state analysis or on numerical simulations of calibrated models this paper presents an analytical argument concerning the dynamic behavior of the growth path and the effects of capital income taxation in and out of the steady growth equilibrium it is demonstrated that the dynamic behavior of the economy and some policy effects depend heavily upon the magnitude of factor intensity used in each production sector copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

dynamic laffer curves abstract in an endogenous growth model with human capital accumulation we discuss the possibility of welfare improving changes on the fiscal policy stance in some actual economies first we characterize the extent to which the initial fall in revenues produced by a permanent tax cut can be compensated by an increase in the tax base due to a dynamic laffer curve effect showing that there is in fact a non trivial margin for substituting debt for taxes on labor and capital income second we show that the largest feasible reduction in labor income tax rates may easily produce a higher welfare gain than the largest feasible reduction in capital income tax rates two qualifications a feasible tax cuts exist only for a relatively high elasticity of intertemporal substitution of consumption and b the preference for the largest feasible tax cut on labor income rather than that on capital income reverses for a low appreciation for leisure relative to consumption in the preferences of the representative agent