fiscal structures and economic growth international evidence i introduction a large and growing body of literature searches for the determinants of economic growth employing cross country regression analysis e g kormendi and meguire 1985 grier and tullock 1989 barro 1990 1991 1992 romer 1989 1990 levine 1991 and levine and renelt 1992 1 the cross country regression approach implicitly assumes that the growth process possesses similar structural properties across the countries in the sample structural differences be they political economic social or other between countries therefore do not condition the growth process or if they do then the effects are randomly distributed with zero mean if structural differences between countries do matter significantly and non randomly in the growth process then the existing cross country research is potentially flawed attempts are sometimes made to control for such differences by including dummy variables for different regions of the world e g dummy variables for african latin american and other groups of countries within the literature on the determinants of economic growth some papers e g landau 1983 1985 1986 kormendi and meguire 1985 ram 1986 koester and kormendi 1989 barth keleher and russek 1990 easterly and rebelo 1993 and fischer 1993 consider the effects if any of government expenditure and revenue on economic growth overall the findings of these studies paint a mixed picture the relationship between growth and government is sometimes significant and positive sometimes significant and negative and sometimes not significant although these studies consider many different fiscal variables they do not as a rule examine the effects of these fiscal variables in a systematic way that controls for the mode of financing they generally overlook for example how an increase in government consumption expenditure is financed is it with higher taxes and which taxes or is it with lower spending and which spending finally is it with a larger deficit controlling for these factors may lead to different findings about the effect of an increase in government consumption expenditure on economic growth borrowing from some work on the effect of fiscal structure on national economic growth within the united states in helms 1985 mofidi and stone 1990 and miller and russek 1993 we introduce the government budget constraint into the regression equations that examine the determinants of economic growth as a result we directly address the three financing questions raised in the previous paragraph in this framework we consider the growth process using pooled times series cross section data and comparing the results from fixed and random effects econometric techniques 2 these techniques attempt to accommodate structural differences between countries and across time we also compare the performance of the more standard ordinary least squares regression approach with that of the fixed and random effect models ii an overview of international fiscal structures before presenting our model and statistical findings a brief overview of the growth and fiscal characteristics of the countries in our sample provides some additional information for those not familiar with the data which otherwise would not be revealed by our analysis 3 this information can contribute in a limited way to the debate about the effects of government on economic growth although it is not a substitute for modeling the growth process for the sample as a whole the growth rate of real per capita gross domestic product gdp averaged 1 35 per year during 1975 to 1984 with a coefficient of variation of 3 52 by comparison the average growth rate in the united states was 1 45 the five fastest growth countries were botswana 6 72 indonesia 4 19 korea 6 32 sri lanka 3 20 and thailand 4 31 the five slowest growth countries were el salvador 1

survey evidence on the willingness of u s consumers to pay for automotive fuel economy abstract prospect theory holds that human beings faced with a risky bet will tend to value potential losses about twice as much as potential gains previous research has demonstrated that prospect theory could be sufficient to explain an energy paradox in the market for automotive fuel economy this paper analyzes data from questions added to four commercial multi client surveys of 1000 u s households each in 2004 2011 2012 and 2013 households were asked about willingness to pay for future fuel savings as well as the annual fuel savings necessary to justify a given upfront payment payback periods inferred from household responses are generally consistent over time and across different formulations of questions mean calculated payback periods are about 3 years but there is substantial dispersion among individual responses the calculated payback periods do not appear to be correlated with the attributes of respondents respondents were able to quantitatively describe their uncertainty about both vehicle fuel economy and future fuel prices simulation of loss averse behavior based on respondents stated uncertainty illustrates how loss aversion could lead consumers to substantially undervalue future fuel savings relative to their expected value

public expenditures and growth the article explores the effects of public expenditures on growth among 73 countries over the 1970 89 period while much of the literature attributes weak growth to public investment and social expenditures which inhibit growth through crowding out and rent seeking the article highlights the contributions that public investment and social expenditures may make to growth the article s econometric analysis suggests that crowding out and rent seeking concerns may have been overstated in the literature

private sector shrinkage and the growth of industrialized economies reply further tests and thoughts on the oecd data lead me to conclude that if anything my 1986 paper underestimated the magnitude of the inverse relation between economic growth and government size if one takes the nominal based measure of government scale as advised by saunders the significance levels coefficient magnitudes and goodness of fits improve over what i found with my initial investigation i would suggest that saunders reconsider his reluctance to believe that the size of the public sector is unrelated to economic growth in oecd countries over this time period

openness external risk and volatility implications for the compensation hypothesis a central assumption in the globalization literature is that economic openness generates economic insecurity and volatility based on this assumption schol ars of international political economy have proposed the compensation hypothesis which claims that globalization bolsters rather than undermines the welfare state by increasing public demand for social protection against externally generated eco nomic instability the openness volatility link is dubious however on both theoret ical and empirical grounds in this study i revisit the volatility assumption focusing on a crucial difference between openness and external risk in their effect on volatil ity my statistical analysis of a panel data set from 175 countries 1950 2002 finds a consistent effect of external risk on volatility of the major economic aggregates but a largely insignificant effect of openness these findings suggest that economic volatility may be a mistaken link in explaining the openness spending nexus calling for further research on the causal mechanisms linking the two the general growth of government in the post world war ii era is one of the most important empirical regularities in political science measured by general govern ment consumption or sectoral expenditures government size grew dramatically during most of the postwar period intrigued by this phenomenal government growth political scientists offered numerous accounts some viewing this growth as a corollary of economic phenomena such as modernization industrialization income distribution or fiscal illusion and others attributing government growth to political causes such as bureaucratization interest group politics and electoral competition 1

public sector and economic growth the greek experience over the past two decades there has been an increase in the relative size of the public sector accompanied by a decline in the growth performance of the greek economy in an attempt to highlight the contribution of the government size to growth an analytical framework is developed incorporating the possibility that marginal factor productivities are not equal in the public and private sectors econometric analysis utilizing this framework points to a negative relationship between government size and economic growth this seems to derive in part from intersectoral diseconomies generated by the growing share of deft financed government activities

cross sector export externalities in developing countries abstract feder s model journal of development economics 1982 12 59 73 has been used extensively to measure the externality and productivity enhancing effects of one sector on the whole economy we argue that the model is misspecified make three modifications estimate it for the export vs non export sectors and compare our results with feder s

accommodating public expenditure policies the case of fast growing asian economies abstract it is widely believed that the exceptional economic performances of the east asian economies are attributable as much to the visible hand of the state as to the invisible hand of the market this paper analyzes the experiences of japan south korea singapore and taiwan in implementing a key instrument of state intervention namely public expenditure policy the analysis shows that these economies could achieve high standards of physical and social infrastructure even with relatively low spending the key features of complementary spending policy include emphasis on macroeconomic stability cost effective spending involvement of private sector in providing quasi public goods minimum distortions in the labor markets and human resource development to achieve a broad based development

consumer myopia imperfect competition and the energy efficiency gap evidence from the uk refrigerator market abstract the empirical literature on the energy efficiency gap concentrates on demand inefficiencies in the energy using durables markets and finds evidence that consumers underestimate future energy costs when purchasing a new appliance we take a broader view and also consider the impact of imperfect competition using data on the uk refrigerator market 2002 2007 we find that the average energy consumption of appliances sold during this period was only 7 2 higher than what would have been observed under a scenario with a perfectly competitive market and non myopic consumers one reason for this small gap is that market power actually reduces energy use

government and growth cross sectional evidence economic theory suggests that government contributes to total economic growth in two ways positively through the provision of pigovian public goods and services and negatively through the inefficient provision of such goods and services and the distortionary effects attendant with their provision this paper develops a model that differentiates the two effects and empirically tests the model for a sample of forty eight countries evidence suggests that the net effect of government on growth is positive but that the negative effects are not insignificant though growth in government output contributes to total economic growth at the margin this is approximately offset by distortionary effects attendant with increases in the relative size of government

fiscal decentralization and government size numerous studies have attempted to model the possible factors contributing to universal growth in public sectors this paper analyzes one device that appears capable of controlling some of that growth fiscal decentralization the results reported here also support the use of monopoly government assumptions in models of public policy

monetary co operation and economic growth in africa comparative evidence from the cfa zone countries this article compares economic growth performance of ten african countries all members of the cfa monetary zone with that of 23 non zone sub saharan african ssa countries our descriptive results suggest that overall african economies have experienced similar growth trends which are higher in the 1970s than the 1980s however contrary to previous studies disaggregated comparison of the cfa with the ssa indicate that no significant growth differences exist between these economies moreover our empirical findings suggest that monetary expansion and capital formation have positive impacts on output growth whereas inflation and government spending show negative effects in sum although participating in a monetary union has not necessarily resulted in faster output growth it has enabled the cfa countries to better control price fluctuations and monetary expansion

high frequency trading and extreme price movements abstract are endogenous liquidity providers elps reliable in times of market stress we examine the activity of a common elp type high frequency traders hfts around extreme price movements epms we find that on average hfts provide liquidity during epms by absorbing imbalances created by non high frequency traders nhfts yet hft liquidity provision is limited to epms in single stocks when several stocks experience simultaneous epms hft liquidity demand dominates their supply there is little evidence of hfts causing epms

those who know most insider trading in eighteenth century amsterdam this paper studies how private information is incorporated into prices using a unique setting from the eighteenth century that is closer to stylized models of price discovery than modern day markets specifically the paper looks at english securities traded in both london and amsterdam private information reached amsterdam through sailing boats that sailed only twice a week and in adverse weather could not sail at all results are consistent with a kyle model in which informed agents trade strategically most importantly the speed of information revelation in amsterdam depended on the expected time until the private signal would become public

urban economic growth in china theory and evidence this paper analyses the relationship between per capita gdp growth and investment foreign direct investment labour force growth government expenditure and urban infrastructure based on the data

is there an energy paradox in fuel economy a note on the role of consumer heterogeneity and sorting bias abstract from the previous literature it can be found that consumers tend to undervalue discounted future energy costs in their purchase decisions for energy using durables we show that this finding could in part result from ignoring consumer heterogeneity in empirical analyses as opposed to true undervaluation

the size of the state economic growth and the efficient utilization of national resources the motives of the state in projecting a more than minimal presence in the economy may be conceived of as benevolent or malevolent whatever the characterization of the motivation increases in the size of the government share of the economy adversely affect economic growth and the allocation of resources nations with relatively large government shares in 1960 on the whole grew more slowly than nations with relatively small state sectors interperiod increases in the size of government were associated with lower growth rates over the period the size of the government share coefficients in the regressions were of sufficiently large magnitude to conclude that the rise in the size of the government has had a substantial depressing effect on economic growth these results are consistent with those reported by landau 1983 and marlow 1986 landau did not adjust economic growth for the growth in factor endowment consequently his results overstate the adverse effect of government size

the temporal price relationship between s p 500 futures and the s p 500 index this paper empirically examines the intraday price relationship between s p 500 futures and the s p 500 index using minute to minute data three stage least squares regression is used to estimate lead and lag relationships with estimates for expiration days of the s p 500 futures compared with estimates for days prior to expiration the results suggest that futures price movements consistently lead index movements by twenty to forty five minutes while movements in the index rarely affect futures beyond one minute

a further analysis of the lead lag relationship between the cash market and stock index futures market the intraday lead lag relation between returns of the major market cash index and returns of the major market index futures and s p 500 futures is investigated empirical results show strong evidence that the futures leads the cash index and weak evidence that the cash index leads the futures the asymmetric lead lag relation holds between the futures and all component stocks including those that trade in almost every five minute interval evidence indicates that when more stocks move together market wide information the futures leads the cash index to a greater degree this suggests that the futures market is the main source of market wide information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

market making with costly monitoring an analysis of the soes controversy we develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort the result is imperfect monitoring which creates profit opportunities for speculators who pick off stale quotes externalities associated with monitoring give rise to multiple equilibria in which dealers earn strictly positive expected profits we obtain various policy implications a switch to automatic execution can improve or worsen spreads and price discovery depending on the specific equilibrium a reduction in the minimum quoted depth tightens the spread but it reduces price efficiency our analysis is relevant for the soes controversy given that speculators in our model behave as the real world soes bandits our model predicts that soes bandits should trade in stocks with small spreads and that soes bandit activity should widen the spread we provide empirical evidence consistent with these predictions

do consumers recognize the value of fuel economy evidence from used car prices and gasoline price fluctuations abstract debate about the appropriate design of energy policy hinges critically on whether consumers might undervalue energy efficiency due to myopia or some other manifestation of limited rationality we contribute to this debate by measuring consumers willingness to pay for fuel economy using a novel identification strategy and high quality microdata from wholesale used car auctions we leverage differences in future fuel costs across otherwise identical vehicles that have different current mileage and therefore different remaining lifetimes by seeing how price differences across high and low mileage vehicles of different fuel economies change in response to shocks to the price of gasoline we estimate the relationship between vehicle prices and future fuel costs our data suggest that used automobile prices move one for one with changes in present discounted future fuel costs which implies that consumers fully value fuel economy

information inefficiency and willingness to pay for energy efficient technology a stated preference approach for china energy label abstract the paper examines the extent to which consumers willingness to pay for energy efficient room air conditioners may be altered by correcting the information inefficiency on the china energy label the data are collected from a discrete choice experiment with two alternatives variable speed and constant speed room air conditioners characterized by attributes of brand purchase price and energy grade three versions of the questionnaires with choice sets differing only in energy consumption indicators were distributed randomly to 1602 potential consumers in nanjing china and a sample of 1569 was obtained after dropping missing data the analysis with multinomial and mixed logit models reveal that the price premium that consumers are willing to pay for a variable speed room ac over a constant speed room ac increases significantly when energy consumption information becomes comparable and additional energy related information is provided furthermore the impact of information on wtp varies under different energy saving scenarios it is suggested that china energy label should correct information inefficiency by adopting same energy indicators for room acs with different technologies and providing energy consumption information based on different climate zones

a note on cross country growth regressions a large and growing literature searches for the determinants of economic growth employing cross country regression analysis this approach implicitly assumes that countries possess similar structu

good day sunshine stock returns and the weather psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood this paper examines the relationship between morning sunshine in the city of a country s leading stock exchange and daily market index returns across 26 countries from 1982 to 1997 sunshine is strongly significantly correlated with stock returns after controlling for sunshine rain and snow are unrelated to returns substantial use of weather based strategies was optimal for a trader with very low transactions costs however because these strategies involve frequent trades fairly modest costs eliminate the gains these findings are difficult to reconcile with fully rational price setting

thresholds in the finance growth nexus a cross country analysis thresholds of inflation government size trade openness and per capita income for the finance growth nexus are investigated using five year averages of standard variables for 84 countries from 1965 to 2004 the results suggest that i high inflation crowds out positive effects of financial depth on long run growth ii small government sizes hurt the finance growth nexus in low income countries while large government sizes hurt high income countries iii low levels of trade openness are sufficient for finance growth nexus in high income countries but low income countries need higher levels of trade openness for similar magnitudes of the finance growth nexus and iv catch up effects through the finance growth nexus are higher for moderate per capita income levels

government special interest groups and economic growth in descending order of robustness and strength the four major conclusions are i the experience of industrial countries in the postwar period indicates that a large welfare state has been associated with a high rate of economic growth ii the olson thesis that powerful special interest groups impede growth receives empirical support iii the relation between growth and the welfare state is non linear with increases in the size of the welfare state beyond some critical level one sixth of gdp according to our estimates resulting in reductions rather than increases in the growth rates and iv the strength of the growth promoting properties of the welfare state is positively related to the strength of special interest groups as proxied by the proportion of the work force unionized one possible interpretation of these results runs as follows a large welfare state may retard economic growth by reducing the incentives to work to save to move and to change on the other hand in a situation where special interest groups have aquired significant power to block change if they so desire the welfare state which offers assistance to those who are the victims of change may play a growth enhancing role in reducing the incentive to block change the fourth conclusion just stated supports this view the welfare state may also foster economic growth through favourable effects on social consensus political stability and labour management relations the results suggest that the growth promoting forces predominate as long as the welfare state is not too large but beyond a certain point which corresponds more or less to the median situation among developed countries today the growth retarding elements come to the fore

economic freedom government policy and the trade off between equity and economic growth this study investigates the role that economicfreedom plays in economic growth and in the distribution in marketincome the role of government policy in advancingeconomic progress and in promoting income equality and the effectthat the rate of economic progress has on thedistribution of market income structural and reduced formmodels are estimated that reveal that economic freedompromotes both economic growth and equity and that there is apositive but relatively small trade off between growth andincome inequality

do weather induced moods affect the processing of earnings news we investigate whether unpleasant environmental conditions affect stock market participants responses to information events we draw from psychology research to develop a new prediction that weather induced negative moods reduce market participants activity levels exploiting geographic variation in equity analysts locations we find compelling evidence that analysts experiencing unpleasant weather are slower or less likely to respond to an earnings announcement relative to analysts responding to the same announcement but experiencing pleasant weather price association tests find evidence consistent with reduced activity due to weather induced moods delaying equilibrium price adjustments following earnings announcements we also use our analyst based research design to re examine an existing prediction that unpleasant weather induces investor pessimism and find evidence of both analyst pessimism and reduced activity in the presence of unpleasant weather together our study provides new evidence that both extends and reaffirms findings of a relation between unpleasant weather and market activities and contributes to the broader psychology and economics literature on the impact of weather induced mood on labor productivity this article is protected by copyright all rights reserved

government and economic growth a non linear relationship recently various authors have examined the relationship between growth in government size and total economic growth in each case the authors permitted only a monotonic relationship this paper examines the issue of a non linear relationship between growth in government and overall growth in the economy

every cloud has a silver lining fast trading microwave connectivity and trading costs modern markets are characterized by speed differentials with some traders being fractions of a second faster than others theoretical models suggest that such differentials may have both positive and negative effects on liquidity and gains from trade we examine these effects by studying a series of exogenous weather episodes that temporarily remove the speed advantages of the fastest traders by disrupting their microwave networks the disruptions are associated with lower adverse selection and lower trading costs in additional analysis we show that the long term removal of speed differentials results in similar effects and also increases gains from trade

government expenditure corruption and total factor productivity abstract this paper classifies government expenditures into three types and constructs a theoretical framework to explore the influences of government expenditures and corruption on total factor productivity it then establishes a dynamic spatial autoregressive model and a panel threshold model to test the theoretical hypotheses based on provincial panel data from 2007 to 2014 the results illustrate that u shape curve relationships exist between government expenditures of administrative service investment development safeguard governance and total factor productivity and that the relationship between the government expenditure structure and total factor productivity follows an inverted u shape curve in addition the findings suggest that increased corruption levels can directly reduce regional total factor productivity and that the effects of the proportions of administrative service expenditures investment development expenditures and safeguard governance expenditures on total factor productivity have a single corruption threshold increasing the proportions of government expenditures could improve the total factor productivity up until the threshold value

government and economic growth in the less developed countries an empirical study for 1960 1980 adam smith founded modern economics with a powerful argument that free markets are the best route to prosperity and economic growth his conclusion has been studied and debated by economists ever since including nobel prize winners friedman hayek kuznets lewis myrdal and schultz whatever economists have concluded since world war ii the majority of the less developed countries seem to have opted for extensive government regulation of the private sector and for a large public sector has the large government role slowed or accelerated the growth of ldcs obviously this is an important issue this study looks at government expenditure revenue raising and regulation greater emphasis is put on expenditure because 1 the revenue raised is presumably a function of the level of expenditure and 2 there are few internationally comparable measures of regulation there are virtually no empirical studies of the general impact of government on economic growth an extensive literature search turned up only three papers gemmell analyzed the impact of nonmarket sector growth on various measures of macroeconomic performance for 27 ldcs and developed countries for 1960 and 1970 he drew no general conclusions about the relation between the size of the nonmarket sector and economic growth marsden found a negative relation between tax gdp ratios and economic growth for a cross section of 20 ldcs and developed countries for the 1970 79 period 2 i found a negative relationship between the share of government consumption expenditure in gdp and the growth of per capita gdp for a cross section of 96 ldcs and developed countries over various time periods between 1961 and 1976 3 this paper extends the approach used in my 1983 article

what do consumers believe about future gasoline prices a full understanding of how gasoline prices affect consumer behavior frequently requires information on how consumers forecast future gasoline prices we provide the first evidence on the nature of these forecasts by analyzing two decades of data on gasoline price expectations from the michigan survey of consumers we find that average consumer beliefs are typically indistinguishable from a no change forecast justifying an assumption commonly made in the literature on consumer valuation of energy efficiency we also provide evidence on circumstances in which consumer forecasts are likely to deviate from no change and on significant cross consumer forecast heterogeneity

public choice and economic aid a major development in the analysis of government economic policies in the developed countries has been the rise of the public choice school the essence of this approach is the application of the same basic assumptions that are used in the study of consumers and producers to political decision makers in the public choice approach decision makers in the public sector are assumed to be trying to maximize their personal benefits similarly to consumers and firms imputing utility maximizing behavior to public sector decision makers does not automatically lead to the conclusion that they will not act in the general interest rather whether they do or not becomes a question of the system of rewards and constraints they face as adam smith demonstrated for firms self interested parties will act in the general interest if properly constrained and rewarded however the public choice approach does imply that public sector decision makers will act in the general interest only if the constraints and incentives on their behavior make serving the general interest also in their interest it would appear that development economics which is highly concerned with government policies could benefit from the application of the public choice perspective this article attempts to do this with respect to the effectiveness of economic aid in promoting economic growth there is an extensive literature that discusses theoretically the effectiveness of aid and a more modest literature that attempts to estimate empirically the impact of aid on growth the literature was recently surveyed by r riddell he surveys the views of the major proponents and critics of aid marxist critics of aid reject the market and the notion of a neutral state pursuing the general interest there seem to be no studies of aid that adopt the public choice approach which both accepts the efficiencies of the market as an instrument for economic growth and also assumes government officials are utility

electricity prices and consumers long term technology choices evidence from heating investments abstract this paper studies consumers s sensitivity to energy costs at the moment of making a long term energy technology investment the analysis exploits local variation in regulated electricity distribution prices that are persistent over time and therefore a good measure of long term price expectations price impacts are estimated on extensive administrative registry data of private persons acting as home builders in finland during 2006 2011 the results show that electricity prices notably influence builders choices and that electricity tax increases have induced demand for technologies based on renewable energy the results on the comprehensive set of individual level characteristics reveal that technology choices vary systematically across households current dwelling status and the education level have the strongest influence on the choice probabilities price sensitivity is found to be lower for low income households and to vary by the current dwelling status and type of building location

government size and economic growth a new framework and some evidence from cross section and time series data a study of the impact of government size on economic performance and growth is important theoretically one point of view suggests that a larger government size is likely to be detrimental to efficiency and economic growth because for example i government operations are often conducted inefficiently ii the regulatory process imposes excessive burdens and costs on the economic system and iii many of government s fiscal and monetary policies tend to distort economic incentives and lower the productivity of the system at the other extreme one can identify some points of view that assign to the government a critical role in the process of economic development and could argue that a larger government size is likely to be a more powerful engine of economic development there are several arguments on which the latter point of view is based these include besides others i role of the government in harmonizing conflicts between private and social interests ii prevention of exploitation of the country by foreigners and iii securing an increase in productive investment and providing a socially optimal direction for growth and development

explaining differences in state growth catching up versus olson in this paper we have tested various explanations for differences in rates of economic growth across states we found no evidence consistent with olson s hypothesis that differences in state age a proxy for the strength of special interest groups can explain differences in state growth furthermore our results indicate that a regression containing only initial income explains most of the variation in the growth of state income in sum a good part of the more rapid growth of southern and other fast growing states is simply a convergence to the national average this convergence is an expected result of basic economic theory given free trade in goods and factors our results are however not necessarily a rejection of the olson hypothesis it may well be that the hypothesis should only be applied to comparisons between nation states not to comparisons between political divisions of the same nation state the institutional and political similarities of the american states may swamp the differences and make the olson hypothesis inapplicable the tendencies cited by olson may indeed be present in the american economy but their differential effect is much too small to explain any of the variation in economic performance across states

economic growth and alternative deficit reducing tax increases and expenditure cuts a cross sectional study this paper assesses empirically the relative desirability of alternative deficit reducing tax increases and expenditure cuts in terms of their individual impact on economic growth using cross sectional data for a sample of 21 developed countries for the period 1972 81

consistent estimates of the impact of special interest groups on economic growth empirical studies designed to testolson s 1982 theory of institutional sclerosis aretypically forced to rely upon proxies to measure theability of special interest groups to engage inredistributive activities which in turn areexpected to hinder economic growth this note showsthat reliance on proxies biases the estimates towardzero here instrumental variable routines areutilized which increase the estimated impact ofspecial interests on the economy

rational inattention and energy efficiency abstractthis paper argues that it will often be rational for consumers to pay limited attention to energy efficiency when choosing among energy consuming durable goods like automobiles or home appliances the reason is that the proper valuation of energy efficiency requires time and effort but differences in efficiency across products will rarely be pivotal to choice when consumers have strong preferences regarding other product attributes the paper first explains why proper valuation of efficiency is difficult even in the presence of government energy labels it next develops a model that shows how to value additional information about energy efficiency in a discrete choice context it then uses data on automobiles to show that consumers experience only small welfare losses when forced to choose a car without detailed information about fuel costs finally the paper discusses the implications of rational inattention for both economic research and public policy

an east asian model of economic development japan taiwan and south korea the east asian model of economic development focuses on 5 shared characteristics that seem significant in the contemporary economic development of japan taiwan and korea they are economic characteristics and include 1 high investment ratios 2 small public sectors 3 competitive labor markets 4 export expansion and 5 government intervention in the economy large and efficient investments in human capital and well developed capacities to absorb new technology are 2 other economic features shared by the three one could add overcrowding high man land ratios and scarcity of natural resources though these are handicaps rather than sources of economic strength it is possible however that virtue springs from necessity and that ample arable land or abundant natural resources mainly permit governments to postpone the difficult decisions needed to promote development rather than provide the wherewithal needed to finance development other noneconomic characteristics of the three such as ethnic and linguistic homogeneity relatively compact geography manageable population size and the confucian tradition have not been considered in the model even though they have undoubtedly influenced labor productivity savings behavior and other aspects of economic performance whether the east asian model ought to be followed depends on whether current and foreseeable circumstances are sufficiently like those faced by the three to justify using the same policies that they used applicability of the east asian model should also depend on whether the strategy employed by the three has been responsible for their economic success 2 aspects of the east asian models policy features are noteworthy 1 the policies typically work by influencing rather than replacing private market decisions and 2 the public expects government to intervene to influence economic growth

public expenditure and national income causality further evidence on the role of omitted variables whether changes in public expenditure growth help predict changes in national income growth and or vice versa remains an important issue of sustained interest in the empirical public finance literature in recent years attention has mainly been confined to two specific areas namely estimation of the impact of the public sector on output growth by means of regression analysis and causality testing unfortunately the outcome of both types of analysis has been inconclusive focussing on the impact studies we note that a number of empirical investigations have attempted to measure the effect of the size of the public sector on overall economic growth for instance ram 19 utilizing a two sector model found that growth of government size has a positive effect on economic growth landau 14 15 however presented opposite evidence indicating that the government sector expansion led to a decline in output growth for many dcs and ldcs since 1960 in a recent study barth keleher and russek 4 estimated variants of ram s models with data for 30 countries their empirical results largely support a negative relationship between the scale of government and aggregate economic activity furthermore using the hausman procedure they rejected the hypothesis that the independent variables namely real government spending or other measures of the scale of the government depending on the specification in the regression equations are exogenous this strongly suggests that the conclusions reached by

keynes versus wagner public expenditure and national income for three african countries the public expenditure income hypothesis has long been debated in economics following keynes public expenditure is seen as an exogenous factor to be used as a policy instrument to influence growth on the other hand wagner argues that expenditure is an endogenous factor or an outcome not a cause of growth in national income the purpose of this paper is to apply both the granger and holmes hutton statistical procedures to test the income expenditure hypothesis for three african countries ghana kenya and south africa we find that the hypothesis of public expenditure causing national income is not supported by the data for these african countries

does too much government spending depress the economic development of transition economies evidences from dynamic panel threshold analysis abstractthis paper investigates the relationship between government size and economic growth and determines the optimal level of government spending to maximize economic growth the paper applies a

economic growth and the expanding public sector a reexamination utilizing a granger causality approach the authors test whether there has been a causal rela tion between public sector growth and real economic growth rates for the oecd countries special emphasis is laid on feedback effects from economic growth to government growth that result from macroeconomic policy the authors find that government growth has had mixed effects on economic growth rates positive for some countries and negative f or others however for the majority of the oecd countries there was no discernable impact of government growth on the rate of real econo mic growth copyright 1988 by mit press

take the money and run political turnover rent seeking and economic growth abstract we find a negative and significant relationship between gubernatorial turnover and u s state economic growth although our finding of an inverse relationship between growth and political instability may seem to contradict olson s 1982a famous hypothesis regarding the growth retarding nature of political stability such constitutional political changes were not primarily what olson had in mind we argue that enhanced political turnover is associated with more rent seeking since payoffs to focusing on special interest redistributive policies vs general growth enhancing ones are greater for less durable regimes therefore we interpret our evidence as supportive of olson s broader argument concerning the negative affect of rent seeking behavior on growth

the effect of vehicle fuel economy standards on technology adoption abstract many countries are tightening passenger vehicle fuel economy standards this paper provides the first empirical evidence on the effects of fuel economy standards on technology adoption we investigate changes in the rate and direction of technology adoption that is the extent to which technology is used to increase fuel economy at the expense of other vehicle attributes we find that recent changes in u s and european standards have both increased the rate of technology adoption and affected the direction of technology adoption producers reduced horsepower and torque compared to a counterfactual in which fuel economy standards remained unchanged we estimate opportunity costs from reduced horsepower and torque to be economically significant relative to the gains from fuel savings

the composition of public expenditure and economic growth abstract noting that the literature has focused on the link between the level of public expenditure and growth we derive conditions under which a change in the composition of expenditure leads to a higher steady state growth rate of the economy the conditions depend not just on the physical productivity of the different components of public expenditure but also on the initial shares using data from 43 developing countries over 20 years we show that an increase in the share of current expenditure has positive and statistically significant growth effects by contrast the relationship between the capital component of public expenditure and per capita growth is negative thus seemingly productive expenditures when used in excess could become unproductive these results imply that developing country governments have been misallocating public expenditures in favor of capital expenditures at the expense of current expenditures

inflation drag or taxation in drag responsible for the rising share of government in australian gdp i am sure that these results will be by no means the last word possible many other influences have been neglected nonetheless they are quite striking and appear to indicate that price level effects inflation have been a major if not the major influence in terms of raising the shares of government revenue and expenditure in gdp over the period 1949 50 to 1987 88 in australia this inflation drag which is really taxation in drag has only been able to operate because of a combination of a highly progressive personal taxation system and the absence for most of this period of any inflation indexation of the tax system i postulate that the primary cause is a high demand from certain segments of the community and special interest groups for greater government outlays and transfer payments however these demands may not in themselves be enough to achieve the objectives of these groups unless combined with rational voter ignorance about the real price to be paid for these activities in terms of higher taxes and future taxes to pay the accumulated deficits a high inflation rate makes it possible for real government expenditures to rise greatly while at the same time the government announces notional tax cuts which may be incorrectly perceived by voters as real tax cuts particularly since the early to middle 1970s australian governments have not had to rely on announcing tax increases to finance rapidly growing real levels of expenditure this has lowered the perceived cost of these programs and facilitated the rapidly rising share of government revenue and expenditure in gdp a sign of some voter disenchantment with ever rising expenditure shares has come in the last year or two as the hawke keating government has been successful in actually slightly lowering the expenditure share one obvious reform which would force governments to be more honest with voters is complete inflation indexation of tax brackets and capital income however as the experimentation with inflation indexation by the fraser government showed no government is likely to voluntarily persist with even partial let alone complete tax indexation to introduce and maintain such a measure some sort of tax constitution as explored by brennan and buchanan 1980 1985 may be desirable since the likelihood of achieving such reform via a constitutional referendum seems remote a promising alternative is the various flat tax proposals such as the hall and rabushka 1985 scheme any scheme which brings average and marginal tax rates into greater equality not only forces politicians to be more honest and open about the consequences of expenditure increases but it also unequivocally improves the efficiency of the tax system via the lowering of work disincentive effects swan 1982 1984 and the excess burden of taxation for a given overall government tax take there cannot be any aggregate income effect offsetting the favourable substitution effect from lowering marginal tax rates when the average level of taxes is raised there is a potential role for income effects since individuals who have been made worse off by tax increases may be motivated to work more to maintain their income higher government expenditure does not necessarily provide higher benefits from public goods to offset lower personal after tax income it is interesting that supporters of big government such as wilenski 1986 30 should use the income effect argument to claim that the effect of taxes on work incentives is an empirical matter since he is in effect conceding that the higher government expenditure which results from higher taxes does not necessarily compensate taxpayers for the burden of these higher taxes i e that the income effect exists and is unfavourable a more fundamental line of attack on the rational ignorance of voters which may be the root cause of many weaknesses displayed by so called democratic governments has only been hinted at here such fundamental reforms may involve the institution of well informed middle persons between voters and governments fostered by revolutionary proposals such as markets in votes and payments for votes instead of the present penalties for failing to vote

government size and growth a survey and interpretation of the evidence the literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings this conflict is largely explained by variations in definitions and the countries studied an alternative approach of limiting the focus to studies of the relationship in rich countries measuring government size as total taxes or total expenditure relative to gdp and relying on panel data estimations with variation over time reveals a more consistent picture the most recent studies find a significant negative correlation an increase in government size by 10 percentage points is associated with a 0 5 to 1 percent lower annual growth rate we discuss efforts to make sense of this correlation and note several pitfalls involved in giving it a causal interpretation against this background we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth one hypothesis is that countries with higher social trust levels are able to develop larger government sectors without harming the economy another explanation is that countries with large governments compensate for high taxes and spending by implementing market friendly policies in other areas both explanations are supported by ongoing research

inference on productivity differentials in multi sector models of economic growth non zero marginal factor productivity differentials between sectors are a key feature of multi sector models of economic growth suggesting the potential for welfare gains through reallocation of resources between sectors however in existing studies inference on the parameter reflecting productivity differentials is inadequate reparameterization of hypotheses relating to the productivity differential parameter allows under the usual assumptions exact finite sample inference to be applied confidence intervals based on this approach applied to existing published studies suggest that many of the inferences on the potential gains in growth from exploiting inter sectoral productivity differences are fragile

economic growth and the quantity and distribution of education a survey the focus of this survey is to discuss different attempts at incorporating the distributional dimension of human capital into the theoretical and empirical growth framework we present a series of models which deviate from the direct link between the aggregate or average level of human capital and economic growth in that they introduce the distribution of education as a new element in explaining the relationship under investigation after surveying the theoretical literature we present recent empirical work on the relation between economic performance and the average level as well as the distribution of education respectively

government expenditure and economic growth a cross country study this paper examines the relationship between the share of government consumption expenditure in gdp and the rate of growth of real per capita gdp the work of the u n international comparison project has recently made available new estimates for over 100 countries of both per capita gdp and the share of government consumption these new estimates are based on direct price comparisons rather than exchange rate conversions as a result the statistics for different countries are more comparable and cross country studies will be more reliable

do cio it budgets explain bigger or smaller governments theory and evidence from u s state governments given the recent concern on big governments and rising budget deficits in the united states and european nations there has been a fundamental economic debate on the proper boundary and role of governments in a society inspired by this debate we study the relationship between information technology it and government size drawing on a broad range of the literature from multiple disciplines such as information systems industrial organization and political sciences we present several theoretical mechanisms that explain the impact of it on government expenditures using a variety of data on it spending and state government expenditures we find that greater it investments made by a state chief information officer cio are associated with lower state government spending it is estimated that on average a 1 increase in state cio budgets is associated with a reduction of as much as 3 49 in state overall expenditures this study contributes to the literature by identifying a key technological factor that affects government spending and showing that it investments can be a means to restrain government growth