rules stability and growth abstract this paper examines two systems of fiscal redistribution in the context of a growing economy subject to unexpected shocks rules and discretion under the former system the tax system is in place and is known to households contemplating investment decisions under the second redistribution is decided upon only after the investment decisions have been made i find that rules always lead to faster capital accumulation and growth but political support for them is only likely to occur in a stable economy income inequality adversely affects the likelihood of adopting rules especially so in an unstable economy

efficient education subsidization and the pay as you use principle abstract we investigate whether the pay as you use principle of public finance should apply to education subsidization for children to internalize human capital externalities in an intergenerational model with endogenous fertility leisure and accumulations of human and physical capital we characterize social optimality concerning physical and human capital accumulation leisure labor and fertility to guide the design of efficient education subsidization we show that efficient education subsidization requires future generations benefitting from it pay for it when fertility and leisure are endogenous namely the government should uphold the pay as you use principle to subsidize children s education by deficit and repay the debt by future taxes

intergenerational mobility under private vs public education intergenerational earnings mobility is analyzed in a model where human capital is produced using schooling and parental time in steady states more mobile societies have less inequality but in the short run higher mobility may result from an increase in inequality starting from the same inequality mobility is higher under public than under private education a rise in income shocks for example due to increased returns to ability or a switch from public to private schooling both increase inequality however increased shocks raise mobility in the short run and do not affect it in the long run whereas an increased role for private schooling reduces mobility in both the short and long run that these differences may help to identify the source of changes in inequality and other real world implications are illustrated in a brief discussion of time trends and cross country differences

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

oligarchy democracy inequality and growth abstract this paper analyses the dynamics of inequality democratization and economic development in a political economy model of growth where education is both the engine of growth and a determinant of political participation in a context with imperfect capital markets we investigate the incentives for an educated oligarchy to subsidize the poor s education and to initiate a democratic transition we characterize the equilibrium patterns of political institutions income distribution and growth as a function of the initial income and inequalities in particular we identify circumstances under which the elite promotes the endogenous emergence of a middle class for purely political economy reasons a simple linear infinite horizon framework is then presented in this setting we discuss the importance of historical dependence for long run social stratification and redistribution

climate change policy what do the models tell us very little a plethora of integrated assessment models iams have been constructed and used to estimate the social cost of carbon scc and evaluate alternative abatement policies these models have crucial flaws that make them close to useless as tools for policy analysis certain inputs e g the discount rate are arbitrary but have huge effects on the scc estimates the models produce the models descriptions of the impact of climate change are completely ad hoc with no theoretical or empirical foundation and the models can tell us nothing about the most important driver of the scc the possibility of a catastrophic climate outcome iam based analyses of climate policy create a perception of knowledge and precision but that perception is illusory and misleading jel c51 q54 q58

climate change and birth weight there is a growing consensus that emissions of greenhouse gases due to human activity will alter the earth s climate most notably by causing temperatures precipitation levels and weather variability to increase the design of optimal climate change mitigation policies requires estimates of the health and other benefits of reductions in greenhouse gases current evidence on the magnitude of the direct and indirect impacts however is considered insufficient for reliable conclusions a j mcmichael et al 2003 1 in addition to the overall predicted warming trend one important feature of many global climate change forecasts is an increased incidence of very high and low temperatures to provide evidence of the potential benefits of greenhouse gas reductions this paper documents whether the temperature variation predicted to be part of climate change including extreme high and low temperatures historically has had negative health consequences through its effect on babies while in utero using individual level data on more than 37 1 million births we find that exposure to extreme hot temperatures during pregnancy leads to lower birth weight we combine this

income ranking and convergence with physical and human capital and income inequality this paper presents an overlapping generations model with physical and human capital and income inequality it shows that inequality impedes output growth by directly harming capital accumulation and indirectly raising the ratio of physical to human capital the convergence speed of output growth equals the lower of the convergence speeds of the relative capital ratio and inequality and varies with initial states among economies with the same balanced growth rate but different initial income levels the ranking of income can switch in favor of those starting from low inequality and a low ratio of physical to human capital particularly if the growth rate converges slowly c 2004 elsevier b v all rights reserved

distributional effects of public education in an economy with public pensions we study how the allocation of government expenditures between two major outlays education and pay as you go social security affects human capital distribution in an economy with heterogeneous agents we consider an overlapping generations economy where the government maintains both programs and allocates tax revenues to finance them in our model human capital is one of the factors of production it is itself produced as a combined result of public inputs and private inputs parents decisions to invest time and material resources in education of their children are motivated by altruism heterogeneous in its strength across the population which leads to heterogeneity of incomes we investigate the effect of an increase in public funding for education on the human capital distribution we show that in this framework contrary to some earlier results increased spending on public education may lead to higher inequality our results depend crucially on the interaction of education funding with the social security budget and on the elasticity of substitution in the learning technology

social norms in social insurance we analyze how insurance arrangements labor supply moral hazard and outright cheating are affected by social norms one question is under what conditions norms may improve social welfare anothe

some economics of global warming the greenhouse effect itself is simple enough to understand and is not in any real dispute what is in dispute is its magnitude over the coming century its translation into changes in climates around the globe and the impacts of those climate changes on human welfare and the natural environment these are beyond the professional understanding of any single person the sciences involved are too numerous and diverse demography economics biology and the technology sciences are needed to project emissions atmospheric chemistry oceanography biology and meteorology are needed to translate emissions into climates biology agronomy health sciences economics sociology and glaciology are needed to identify and assess impacts on human societies and natural ecosystems and those are not all there are expert judgments on large pieces of the subject but no single person clothed in this panoply of disciplines has shown up or is likely to this article makes an attempt to forecast the economic and social consequences of global warming due to anthropogenic greenhouse gases and attempting to prevent it

socially optimal social security and education subsidization in a dynastic model with human capital externalities fertility and endogenous growth abstract this paper considers socially optimal government policies in a dynastic family model with physical capital human capital endogenous fertility and positive spillovers from average human capital such spillovers reduce human capital investment but raise fertility from their social optimum we first characterize the social optimum with a non convex feasible set due to the quantity quality tradeoff concerning children we then show that social security and education subsidization together financed by labor income taxes can fully eliminate the efficiency losses of the spillovers and achieve the social optimum under plausible conditions however none of the policies can do so alone

the economic impacts of climate change evidence from agricultural output and random fluctuations in weather fisher et al 2012 hereafter fhrs have uncovered coding and data errors in our paper deschenes and greenstone 2007 hereafter dg we acknowledge and are embarrassed by these mistakes we are grateful to fhrs for uncovering them we hope that this reply will also contribute to advancing the literature on the vital question of the impact of climate change on the us agricultural sector fhrs main critiques of dg are as follows i there are errors in the weather data and climate change projections used by dg ii the climate change projections are based on the hadley 2 model and scenarios rather than the more recent hadley 3 model and scenarios iii standard errors are biased due to spatial correlation iv the inclusion of state by year fixed effects does not leave enough weather variation to obtain meaningful estimates of the relationship between agriculture profits and weather v storage and inventory adjustment in response to yield shocks invalidate the use of annual profit data and vi fhrs argue that a better specified hedonic model produces robust estimates unlike the results reported in dg four of these critiques have little basis and we respond to them here in the introduction specifically with respect to ii the more recent daily climate predictions were not available when we wrote dg nevertheless the most important issue is providing the reliable estimates of climate change and in this note we report estimates based on the climate model we used in dg and a more recent one that we gained access to in the meantime iii in the primary table on agricultural profits dg reports two sets of standard errors with the first clustered at the county level and the second based on a variance covariance matrix that accounts for spatial correlation using the method proposed in conley 1999 thus the claim of fhrs 2012 seems overblown nevertheless to ease comparisons of papers in this literature this note will adopt the fhrs convention of reporting estimated standard errors clustered at the county and state levels we find that inference is largely unaffected by the choice between these different assumptions about the variance covariance matrix

redistributing income under proportional representation although majoritarian decision rules are the norm in legislatures relatively few democracies use simple majority rule at the electoral stage adopting instead some form of multiparty proportional representation moreover aggregate data suggest that average income tax rates are higher and distributions of posttax income flatter in countries with proportional representation than in those with majority rule while there are other differences between these countries this paper explores how variations in the political system per se influence equilibrium redistributive tax rates and income distributions a three party proportional representation model is developed in which taxes are determined through legislative bargaining among successful electoral parties and the economic decision for individuals is occupational choice political economic equilibria for this model and for a two party winner take all majoritarian system are derived and compared

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

does education expansion increase intergenerational mobility education expansion may lead to over education where the social connections of parents may exert more significant influence on the return to education of children with the assumption of a positive correlation between return on human capital and parental income in the presence of over education we show that i the expansion of education may cause horizontal inequity in education opportunities and inefficiency in human capital accumulation ii the positive correlation between return on human capital and parental income causes a more persistent intergenerational immobility iii an expansion of education especially higher education leads to more persistent intergenerational immobility

pecuniary emulation inequality and growth abstract we study a two class growth model in which agents care about both consumption and the social perception of their wealth rank the latter determines the social status enjoyed by agents social perceptions are based upon noisy signals of wealth and in equilibrium there is incomplete separation of classes the steady growth rate of the economy increases with the full information status differential between classes and contrary to the growth model without status it is affected by the initial level of wealth inequality both too much equality and too much inequality are detrimental to economic growth

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

income distribution and growth in east asia it is widely believed that the east asian economies performed exceptionally well not only in generating growth but also in keeping inequality low this study tries to answer the questions raised by the claims of exceptionality of income distribution in east asia central findings are that only japan korea and taiwan have legitimate claims to low inequality that the east asian economies distinguished themselves by their ability to translate high profit shares into high savings and investment rates and that low inequality and high profit shares coexisted primarily due to the unusually even distribution of wealth

an economic model of welfare stigma perhaps the most basic assumption of the economic theory of consumer demand is that more is better than less virtually all of the major propositions of consumer theory can in a certain sense be derived from the assumption that goods are good interestingly however this tenet seems to be violated by the behavior of many individuals in the low income population for many turn out to be eligible for a positive welfare benefit but do not in fact join the welfare rolls for example it has been estimated that in 1970 only about 69 percent of the families eligible for afdc aid to families with dependent children participated in the program see richard michel 1980 the corresponding percentage for afdc u the program for which families with an unemployed male are eligible was only 43 percent and the participation rate in the food stamp program was only 38 percent see maurice mcdonald 1977 this phenomenon has puzzled many investigators because such individuals do not locate on the boundaries of their budget sets consequently most investigators ignore the problem when studying the effects of welfare programs on behavior in this paper this seemingly irrational rejection of an increase in income is modeled as resulting from welfare stigma that is from disutility arising from participation in a welfare program per se 1 the existence of stigma has been amply documented in the sociological literature patrick horan and patricia austin 1974 lee rainwater 1979 where interviews of recipients have often uncovered feelings of lack of self respect and negative self characterizations from participation in welfare nevertheless this phenomenon has not been modeled and many questions consequently remain when is the disutility of participation strong enough to prevent participation shouldn t we expect individuals to weigh the disutility of participation against the potential benefit in their decisions what is the elasticity of participation with respect to the potential benefit also in a slightly different vein how are the work disincentives of welfare affected by stigma these questions have been given scant attention by economists yet they are crucial for our ability to predict the impact of various welfare programs on the lowincome population here these questions are addressed by modeling nonparticipation as a utility maximizing decision the model is developed and estimated for the afdc program 2 the model posits an individual utility function containing not just disposable income but

democracy as an equilibrium observation shows that while democracy is fragile in poor countries it is impregnable in developed ones to explain this pattern i develop a model in which political parties propose redistributions of incomes observe the result of an election and decide whether to comply with the outcome or to launch a struggle for dictatorship democracy prevails in developed societies because too much is at stake in turning against it more income can be redistributed in developed than in poor countries without threatening democracy limits on redistribution arise endogenously so that constitutions are not necessary for democracy to endure a democratic culture characterizes the equilibrium

talent growth and income distribution a model with heterogeneous individuals and bequests between generations is constructed to analyze income distribution and educational choice the introduction of an imperfection in the credit market is shown to influence the allocation of talent both ability and bequest are of relevance in deciding whether or not to invest in education with learning by doing between generations the allocation of talent affects not only the level of production but also the growth rate copyright 1993 by the editors of the scandinavian journal of economics

regional convergence evidence from a new state by state capital stock series this paper seeks to reconcile the growth empirics technique of mankiw romer and weil 1992 with the empirical results of barro and sala i martin 1991 through the development of a new database covering the 1977 96 period we create state by state capital stock and gross investment estimates by apportioning the national capital stock among the states using these estimates along with gross state product and employment data we find evidence that the solow growth model explains state wide growth during this period we consistently find a rate of convergence of around 2 our results as a consequence suggest that the empirical results of barro and sala i martin are driven by the neoclassical growth process of solow

critical survey endogenous growth theory a critical assessment a critical assessment is made of endogenous growth theory from the perspective of recent developments within economics as a discipline these include its increasing mathematical formalisation its focus upon microfoundations the casual use of econometrics to test models and the incorporation of factors that have traditionally been outside mainstream economics it is found that the theory focuses upon market imperfections and technological progress in a variety of ways and reconstructs their impact upon the macroeconomy as a growth rather than as a level effect whilst the growth rate is endogenised this leads to the problem of multiple equilibria and extremely complex dynamics the generalisation from exogenous growth theory is however associated with even more extreme assumptions and analytical distance from the socioeconomic processes of growth itself copyright 2000 by oxford university press

inequality growth and democracy the analysis of the relationship between inequality and economic growth in distinct politi coeconomic environments has been one of the central preoccupations of the extensive theoretical and empirical work on growth in the last decade the authors argue that the empirical evidence available to date strongly indicates the relevance of this work for understanding the elusive causal connection between economic development and democracy the state of the literature suggests considerable sophistication in conceptualizing the direct economic effects of inequality and contains critical insights into politically unconstrained policy making aimed at the alleviation of their negative economic impact however the political feasibility of the recommended policy measures and the politically mediated effects of inequality and redistributive policy on growth and on the strength and stability of democratic regimes are understood less well the authors discuss the critical factors influencing these effects and sketch several approaches to creating a comprehensive politicoeconomic account of the interaction between inequality redistributive policy making and political regimes

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

demographic structure and the political economy of education subsidies this paper investigates the politico economic impact of a society s age structure on the extent of public funding of education education subsidies serve to internalize positive spillovers of human capital investment but redistribute resources from the working old to the non working young thus creating a conflict of interest between the two generations the political process is characterized by a representative democracy

temperature shocks and welfare costs abstract this paper examines the welfare implications of rising temperatures using a standard var we empirically show that a temperature shock has a sizable negative and statistically significant impact on tfp output and labor productivity we rationalize these findings within a production economy featuring long run temperature risk in the model macro aggregates drop in response to a temperature shock consistent with the novel evidence in the data such adverse effects are long lasting over a 50 year horizon a one standard deviation temperature shock lowers both cumulative output and labor productivity growth by 1 4 percentage points based on the model we also show that temperature risk is associated with non negligible welfare costs which amount to 18 4 of the agent s lifetime utility and grow exponentially with the size of the impact of temperature on tfp finally we show that faster adaptation to temperature shocks results in lower welfare costs these welfare benefits become substantially higher in the presence of permanent improvements in the speed of adaptation

education democracy and growth abstract this note presents a model of endogenous growth where redistribution determined by a political equilibrium is in the form of public education it is shown that there need not be a negative relationship between growth and redistribution as public education increases the level of human capital in the conomy and at the same time tends to produce a more even income distribution

income distribution and investment abstract after being the subject of a heated debate during the sixties and the seventies the relation between income distribution and growth has received renewed attention in recent years the new literature has focused on three channels whereby this relation can occur imperfections in capital markets voting on fiscal policy and political instability in all these approaches growth in or outside the steady state is the result of investment in physical or human capital therefore these theories can also be stated and tested in terms of the effects of income distribution on investment this has the double advantage of reducing the complexity of a necessarily brief survey and of bringing out more clearly the main elements of novelty in this literature so far empirical implementations of these theories have in general been restricted to reduced form regressions of growth or equivalently investment on income distribution and other variables in this survey i take a step further and test the three approaches by explicitly estimating the role of the imperfections in capital markets of government expenditure and of political instability in mediating the effects of income distribution on investment

intra generational equity and sustainable welfare a time series analysis for the uk and sweden this paper discusses the importance of intra generational equity to sustainable development it outlines a number of methodologies for measuring income inequality in the economy and presents several possible ways of incorporating the impact of distributional effects into measures of welfare in the economy the authors highlight in particular an index developed by atkinson atkinson a b 1970 distributive politics and economic growth q j econ may 465 490 based on the social welfare model this method possesses two main advantages over other methods firstly it is expressed directly in terms of social well being secondly value judgements incorporated into the measure are made explicit through the parameter o which expresses society s degree of aversion to income inequality the paper calculates the value of the atkinson index for two case study countries sweden and the uk between 1950 and 1996 for a central estimate of o0 8 the results show that the welfare loss due to inequalities in the distribution of income varied between 5 and 10 for sweden and between 6 and 14 for the uk with the higher values coming towards the end of the period the paper explores the sensitivity of these results to changes in the value of o for the case of the uk and discusses the relevance of the work to the measurement of sustainable welfare 2000 elsevier science b v all rights reserved

pricing uncertainty induced by climate change geophysicists examine and document the repercussions for the earth s climate induced by alternative emission scenarios and model specifications using simplified approximations they produce tractable characterizations of the associated uncertainty meanwhile economists write highly stylized damage functions to speculate about how climate change alters macroeconomic and growth opportunities how can we assess both climate and emissions impacts as well as uncertainty in the broadest sense in social decision making we provide a framework for answering this question by embracing recent decision theory and tools from asset pricing and we apply this structure with its interacting components to a revealing quantitative illustration

revisiting the threshold effect of remittances on total factor productivity growth in south asia a study of bangladesh and india abstractboth bangladesh and india are among the top recipient of remittances in absolute terms however in relative terms remittances as a per cent of gdp the two countries stand at 6 1 and 2

education social security and growth abstract we study the role of government s allocation of tax revenues between two outlays public investment in education a transfer to the young generation and social security benefits to the older generation in an overlapping generations economy with pay as you go social security and altruistically motivated transfers from parents to children we analyze how the allocation of the tax revenues between the two outlays affects growth and welfare in competitive equilibria a we obtain comparative dynamics results for nonstationary equilibria subject to a change in the allocation profile b for stationary equilibria we show that for a given allocation profile of the tax revenues educational subsidies can either increase the growth rate or decrease it depending on the parameters of the model preferences production function and the tax rate c if government seeks to allocate funds in a way that maximizes the growth rate we demonstrate that under some plausible conditions it is not optimal to maintain pay as you go social security however if parents preferences combine strong concern for their retirement with significant degree of altruism towards their children then pay as you go social security system does enhance growth and welfare

optimal taxes on fossil fuel in general equilibrium we analyze a dynamic stochastic general equilibrium dsge model with an externality through climate change from using fossil energy our central result is a simple formula for the marginal externality damage of emissions or equivalently for the optimal carbon tax this formula which holds under quite plausible assumptions reveals that the damage is proportional to current gdp with the proportion depending only on three factors i discounting ii the expected damage elasticity how many percent of the output flow is lost from an extra unit of carbon in the atmosphere and iii the structure of carbon depreciation in the atmosphere thus the stochastic values of future output consumption and the atmospheric co2 concentration as well as the paths of technology whether endogenous or exogenous and population and so on all disappear from the formula we find that the optimal tax should be a bit higher than the median or most well known estimates in the literature we also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change we find coal rather than oil to be the main threat to economic welfare largely due to its abundance we also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress

education subsidies social security and growth the implications of a demographic shock we develop a three period overlapping generations model in which individual decisions about education are the engine of growth in this setting we investigate the normative role of education subsidies and old age pensions calibrating this model on empirical data it is shown that the case for positive pension benefits is rather weak on the optimal path an important part of education subsidies should be financed by lump sum taxes on retirees we also examine how these transfers should be adjusted in the presence of a baby boom baby bust demographic shock it turns out that an appropriate policy could be to increase education when the baby boom generation is at work labor productivity will then be higher when aging peaks so that the pension bill can be financed without reducing welfare for the baby bust generations

temperature and growth a panel analysis of the united states this paper documents that seasonal temperatures have significant and systematic effects on the u s economy both at the aggregate level and across a wide crosssection of economic sectors this effect is particularly strong for the summer an increase of 1 f in the average summer temperature is associated with a reduction in the annual growth rate of state level output of 0 15 to 0 25 percentage points when these estimates are combined with projected increases in seasonal temperatures it is found that a reduction of u s economic growth by up to one third could occur over the next century

distribution and development in a model of misgovernance abstract this paper presents an analysis of bureaucratic corruption income inequality and economic development the analysis is based on a dynamic general equilibrium model in which bureaucrats are appointed by the government to implement a redistributive programme of taxes and subsidies designed to benefit the poor corruption is reflected in bribery and tax evasion as bureaucrats conspire with the rich in providing false information to the government in accordance with empirical evidence the model predicts a positive relationship between corruption and inequality and a negative relationship between corruption and development

is financial openness bad for education a political economy perspective on development abstract this paper presents a simple model of the links between education democratization and economic development in a context of imperfect capital markets we investigate the incentives for a capitalist oligarchy to subsidize the education of poor workers and to initiate a political transition it is shown that international financial liberalization while stimulating physical capital accumulation reduces the capitalist elite willingness to subsidize domestic human capital accumulation in the medium run it thus delays without necessarily impeding the process of democratization

relationships between household consumption and inequality in the indian states current evidence on the relationships between growth and inequality is predominantly based on cross country data sets or panel data sets covering a small number of time periods but these relationships being fundamentally dynamic in nature need to be considered over a much longer time horizon available state level results from the national sample surveys in india provide such an opportunity this article uses this unique data set to examine the interrelationships between average consumption and inequality within states and test for causality distributional patterns of growth vary but there is strong evidence in many instances of a strong negative effect of initial inequality on subsequent growth

sick pay insurance and sickness absence some european cross country observations and a review of previous research all european countries have some form of compulsory insurance against the loss of income due to temporary disability the insurance schemes vary widely between countries both in terms of measurable

optimal public investments in education and endogenous growth optimal public investments in human capital through subsidizing private education or providing public education are considered in an endogenous growth model with externalities subsidizing private education stimulates growth improves welfare and has no distributional effect while reducing income inequality as in the literature public education hinders the growth of the average income unless externalities are strong enough and reduces the welfare of the median agent unless initial income inequality is sufficiently high societies with high income inequality may provide public education and will replace it with subsidized private education in some future periods as income converges copyright 1996 by the editors of the scandinavian journal of economics

capital taxation under political constraints this paper studies optimal dynamic tax policy under the threat of political reform a policy will be reformed ex post if a large enough coalition of citizens supports reform thus sustainable policies are those that will continue to attract enough political support in the future we find that optimal marginal capital taxes are either progressive or u shaped so that savings are subsidized for the poor and or the middle class but are taxed for the rich u shaped capital taxes always emerge when individuals political behavior is purely determined by economic motives

who gains from non collusive corruption non collusive corruption i e corruption that imposes an additional burden on business activity is particularly widespread in low income countries we build a macroeconomic model with credit market imperfections and heterogeneous agents to explore the roots and consequences of this type of corruption we find that credit market imperfections by generating rents for the incumbent entrepreneurs create strong incentives for corrupt behavior by state officials however non collusive corruption not only redistributes income from non officials towards officials but also within the group of potential entrepreneurs if borrowing is limited bribes prevent poorer but talented individuals from starting a business but this is likely to benefit those who may enter anyway the cost of capital is lower and there is less competition on the goods markets

factor shares and savings in endogenous growth in models of steady investment driven growth an individual s propensity to save depends on how much of his income is drawn from accumulated factors of production capital rather than from nonaccumulated factors when agents are heterogeneous in this respect growth oriented policies have distributional consequences and in the absence of lump sum redistribution their implementation faces political constraints if the median voter is capital poor relative to the economy s representative agent political interactions tend to slow down growth when policy acts on capital s income share and tend to accelerate it when investment subsidies are the policy instrument of choice copyright 1993 by american economic association

hot and cold seasons in the housing market every year housing markets in the united kingdom and the united states experience systematic above trend increases in prices and transactions during the spring and summer hot season and below trend falls during the autumn and winter cold season house price seasonality poses a challenge to existing housing models we propose a search and matching model with thick market effects in thick markets the quality of matches increases rising buyers willingness to pay and sellers desire to transact a small deterministic driver of seasonality can be amplified and revealed as deterministic seasonality in transactions and prices quantitatively mimicking seasonal fluctuations in uk and us markets

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

public education expenditures taxation and growth linking data to theory governments around the world have taken a prominent role in financing education while justifications for this involvement are varied a common motivation is that education expenditures are a key to sustained economic growth economic theory provides a foundation for this belief many papers in the endogenous growth literature have formalized a link between public education expenditures human capital accumulation and long term growth while theory assigns public education expenditures a key role in growth empirical support for the link is mixed as highlighted by blankenau and simpson 004 the disconnect between theory and data can be reconciled by taking a closer look at the theory in nearly every model where growth is fueled by public education expenditures a nonmonotonic relationship between expenditures and growth can arise public education spending increases growth while taxes may decrease growth leaving the net effect ambiguous thus economic theory shows that to identify the growth effects of expenditures one must account for any offsetting effects of the requisite taxation most empirical investigations of these effects do not explicitly control for the method of finance however in contrast we make the relationship between expenditures taxation and growth central to our analysis we estimate a

a model of public education and income inequality with a subsistence constraint 1 introduction deep in a citrus grove law officers crept up on dionatan rocha and caught him redhanded dionatan a 12 year old wearing a baseball cap and t shirt was picking oranges in plain violation of brazil s child labor code says mr grajew brazil s chronically unequal wealth distribution has one root cause millions of children are working instead of studying moffett 1998 to reduce income inequality and spur economic development many have advocated increased support for public education however public education may not be a silver bullet to eliminate poverty or lower income inequality fields 1980 reports that income inequality in several developing countries did not lessen even after an increased allocation of resources to public education sylwester 2002 considers how education expenditures are associated with subsequent changes in income inequality within a cross section of countries after dividing the sample into oecd and less developed country subsamples he finds that education expenditures are more strongly associated with falling income inequality in the former group one possible reason for these differing outcomes is that even when public education is freely provided attendance is not guaranteed especially in poorer nations as in the above account families may place their children in the labor force even if this is illegal since the income that these children generate is nontrivial to the welfare of the family consequently a subset of the population may exist that has little if any formal schooling thereby limiting opportunities for these individuals later in life and possibly creating a permanent underclass poor children work rather than attend school and thus remain poor as adults these adults then need their children to work to help support the family and this poverty persists through another generation therefore a better understanding of this cycle and of the policies that can break this cycle is needed to help alleviate poverty in these nations this is not the first paper to examine how public education affects income inequality or poverty glomm and ravikumar 1992 develop a model in which agents vote for a public or private education system and in which a public education system benefits low income agents relative to high income agents consequently a public education system unambiguously decreases the level of income inequality saint paul and verdier 1992 and zhang 1996 also conclude that public education helps to lower income inequality over time a critical assumption of these models is that attending public school is costless and so all agents attend however jimenez 1986 finds that this assumption is questionable in many developing countries although public education is often provided freely it is not necessarily costless those attending school forgo income that could have been used to help support a family and in some cases this income is necessary for the family s survival jimenez 1986 also reports that taxation in many developing countries is regressive taken together these assertions imply that in some countries poor families are hurt by the taxation used to support public education but do not receive many of the benefits in fact these public education systems might even be contributing to an increase in the level of income inequality this paper creates a model that explores some of these issues like those of perotti 1993 and galor and zeira 1993 this model does not assume that all agents partake in public education instead agents face an opportunity cost associated with going to school and thus choose how much schooling to acquire it is possible that the level of income inequality does not decline even in the presence of a public education system fernandez and rogerson 1995 also capture some of these concerns in their model of public education with endogenous subsidies in their model only agents attending school receive education subsidies and so highincome agents who have the means to attend school then have an incentive to vote for high subsidies

educational systems growth and income distribution a quantitative study this study sets out to develop a dynamic model within an economy characterized by the coexistence of public and private schools under imperfect credit market conditions in an attempt to provide a clearer understanding of the evolution of economic growth and income inequality we find that any government wishing to reduce income inequality should adopt policies aimed at increasing the enrollment rate in public schools however whilst high enrollment rates can be sustained in private schools and thus create enhanced economic growth this can only occur if accompanied by the liberalization of the credit markets

risk bearing and the theory of income distribution this paper develops the stochastic theory of distribution with a dynamic model which focuses on the role of incomplete insurance in generating inequality unlike previous work our approach takes explicit account of the reason for market incompleteness in modeling agents behaviour in particular the amount of risk borne is endogenous using a model of growth with altruism in which agents are risk averse and there is moral hazard we show that lineage wealth follows a markov process which converges globally to an ergodic distribution this also represents the long run population distribution of wealth we discuss the role of particular assumptions such as availability of production loans and unboundedness of utility in yielding the qualitative properties of the distribution of wealth the choice of occupation and the prevention of poverty traps