cyclical ratcheting in government spending evidence from the oecd this paper studies the role of business cycles in the phenomenon of increasing government spending gdp ratios in the oecd countries an empirical framework that includes both long run and cyclical considerations in the determination of government spending is applied to panel data covering 1975 1998 the main finding is that the prolonged rise in the spending gdp ratio is partially explained by cyclical upward ratcheting due to asymmetric fiscal behavior the ratio increases during recessions and is only partially reduced in expansions the long run ratcheting effect is estimated as approximately 2 of gdp also analyzed are the cyclical changes in the composition of government spending government consumption transfers and subsidies and capital expenditure as well as a possible link between cyclical ratcheting and government weakness

how resilient are labour markets to natural disasters the case of the 1998 bangladesh flood abstract natural disasters devastate economies as they impede capital accumulation the resilience of labour markets is crucial for the poor who rely on labour to reduce risk we evaluate how the 1998 flood of the century affected wages in bangladesh we find short term declines in agricultural and non agricultural wages agricultural workers who moved towards non agricultural employment to cope benefitted through a lower percentage reduction in short term wages endowed with human capital salaried workers were unable to mitigate income risk extending the eligibility of credit access or relief programmes may preserve local businesses and their employees in the years following a flood

multiple equilibria and progressive taxation of labor income abstract this paper shows that in a one sector real business cycle model with strong increasing returns in production progressive taxation of labor income can stabilize the economy against sunspot fluctuations even when the capital tax schedule is flat this result is consistent with the us tax code in which labor income taxation is more progressive than capital income taxation

micro and macro elasticities in a life cycle model with taxes we build a life cycle model of labor supply that incorporates changes along both the intensive and extensive margin and use it to assess the consequences of changes in tax and transfer policies on equilibrium hours of work we find that changes in taxes have large aggregate effects on hours of work moreover we find that there is no inconsistency between this result and the empirical finding of small labor elasticities for prime age workers in our model micro and macro elasticities are effectively unrelated our model is also consistent with other cross country patterns

tax base variability and procyclical fiscal policy in developing countries abstract based on a sample of 56 countries we show that fiscal policy in the g7 countries appears to be acyclical while fiscal policy in developing countries is procyclical i e fiscal policy is expansionary in good times and contractionary in bad times to explain this puzzle we develop an optimal fiscal policy model in which running budget surpluses is costly because they create pressures to increase public spending given this distortion a government that faces large fluctuations in the tax base as is the case for developing countries will find it optimal to run a procyclical fiscal policy

indeterminacy and stabilization policy abstract it has been shown that a one sector real business cycle model with sufficient increasing returns in production may possess an indeterminate steady state that can be exploited to generate business cycles driven by animal spirits of agents this paper shows how an income tax schedule that exhibits a progressivity feature can ensure saddle path stability in such a framework and thereby stabilize the economy against sunspot fluctuations conversely an economy with a flat or regressive tax schedule is more susceptible to indeterminacy journal of economic literature classification numbers e32 e62

long term impacts of droughts on labour markets in developing countries evidence from brazil abstract climate shocks have well documented impacts on the short term welfare of rural households in developing countries we investigate the impact of droughts on brazilian labour markets we find long term rural wage losses beyond the immediate impact of the drought with affected workers taking five years to catch up with their peers findings are robust to model specification the severity of the losses varies with the dependence on agricultural income supporting the notion of diversifying portfolio strategies in rural areas to reduce climate related income risk

evidence on the political economy of the urbanization process urbanization and economic development go hand in hand as a country moves from a rural agricultural base to an urban industrial base this paper argues that urbanization per se occurs in response to the basic sector shift out of agriculture and government policies such as price controls and trade protection of industry affect the process only indirectly through their effect on sector composition however urban concentration the extent to which a country s urban resources are concentrated in one or two large cities as opposed to more evenly spread is much more directly affected by policies and politics the paper finds specifically that investments in inter regional infrastructure facilitates urban deconcentration away from primate to hinterland cities as does increasing democratization or increasing fiscal decentralization the findings move beyond establishing basic correlations in the data to trying to quantify causal effects in a panel framework with instrumental variables estimation

was the great depression a low level equilibrium abstract if the great depression indeed was a bad equilibrium then there was another better equilibrium that the economy might have been in but wasn t this is the multiple equilibrium explanation but another explanation is that equilibrium was unique and that there were especially bad real shocks that caused output and employment to fall so much the data tentatively support the second story the depression can not be blamed on a massive coordination failure this conclusion hinges however on the assumption that the money supply did not act as an equilibrium selection device but since in the u s at least money is not the best leading indicator there are more natural variables that could have played this role and we find this assumption reasonable if this is correct our results offer little if any support to the view that the depression was the result of a coordination failure

balanced budget rules distortionary taxes and aggregate instability a traditional argument against a balanced budget fiscal policy rule is that it amplifies business cycles by stimulating aggregate demand during booms via tax cuts and higher public expenditures and by reducing demand during recessions through a corresponding fiscal contraction this paper suggests an additional source of instability that may arise from this type of fiscal policy rule it shows that within the standard neoclassical growth model a balanced budget rule can make expectations of higher tax rates self fulfilling if the fiscal authority relies heavily on changes in labor income taxes to eliminate short run fiscal imbalances calibrated versions of the model show that indeterminacy occurs for income tax rates that are empirically plausible for the u s economy and other group of seven countries

sovereign default the role of expectations we study a variation of the standard model of sovereign default as in aguiar and gopinath 2006 or arellano 2008 and show that this variation is consistent with multiple interest rate equilibria some of those equilibria correspond to the ones identi ed by calvo 1988 where default is likely because rates are high and rates are high because default is likely the model is used to simulate equilibrium movements in sovereign bond spreads that resemble sovereign debt crises it is also used to discuss lending policies similar to the ones announced by the european central bank in 2012

capacity utilization under increasing returns to scale abstract this paper overcomes an important objection against the empirical relevance of the benhabib farmer model as a potential account of actual business cycle fluctuations this is attributable to an elasticity effect and a returns to scale effect of capacity utilization these effects are closely related to the empirical puzzles that capital appears to play an insignificant role in explaining cyclical movements in output and that the estimated labor elasticity appears to be larger than labor s share due to these effects multiple equilibria and persistent fluctuations can easily occur in a growth model for externalities mild enough so that the aggregate labor demand curve is downward sloping analyses show that the propagation mechanism generated by capacity utilization under mild increasing returns is capable of explaining the periodic patterns of u s business cycles documented by watson journal of economic literature classification numbers e32 e22 c52

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

countercyclical taxes in a monopolistically competitive environment in the context of a neoclassical growth model with monopolistic competition this paper studies the stabilizing effects of countercyclical tax policy when the income tax rate has an additional role of financing government budget deficits consistent with the conventional wisdom countercyclical taxes generally reduce aggregate volatility unless the fiscal response to debt accumulation is weak the presence of monopoly power enhances these effects even when automatic stabilizers successfully stabilize business cycle fluctuations countercyclical taxes are welfare inferior due to reduced precautionary saving motives while if the fiscal response to debt is weak and countercyclical tax policy destabilizing the increased precautionary saving motive is not welfare enhancing as the asset accumulated is government debt rather than capital these results are generally robust nominal inertia may however dominate the precautionary saving mechanism

chaos sunspots and automatic stabilizers abstract we consider a real business cycle model with an externality in production depending on parameter values the model has sunspot equilibria cyclical and chaotic equilibria and equilibria with deterministic or stochastic regime switching we study the implications of this model environment for automatic stabilizer tax systems stabilization is desirable because the efficient allocations are characterized by constant employment and output growth we identify an automatic stabilizer income tax subsidy schedule with two properties i it specifies the tax rate to be an increasing function of aggregate employment and ii earnings are subsidized when aggregate employment is at its efficient level the first feature eliminates inefficient fluctuating equilibria while the second induces agents to internalize the externality

the emergence of parallel markets in a transition economy the case of mozambique abstract the food rationing scheme in maputo mozambique was intended to ensure food security for the poor an analysis of survey data reveals that even households that possess ration cards are mainly reliant on parallel markets instead of the ration system for their purchases the results indicate that market liberalization including eliminating rationing will at worst be neutral for the poor and more likely be beneficial since the treasury will capture the rents associated with rationing that presently accrue to traders and parastatals

what do we learn from the weather the new climate economy literature a rapidly growing body of research applies panel methods to examine how temperature precipitation and windstorms influence economic outcomes these studies focus on changes in weather realizations over time within a given spatial area and demonstrate impacts on agricultural output industrial output labor productivity energy demand health conflict and economic growth among other outcomes by harnessing exogenous variation over time within a given spatial unit these studies help credibly identify i the breadth of channels linking weather and the economy ii heterogeneous treatment effects across different types of locations and iii nonlinear effects of weather variables this paper reviews the new literature with two purposes first we summarize recent work providing a guide to its methodologies datasets and findings second we consider applications of the new literature including insights for the damage function within models that seek to assess the potential economic effects of future climate change jel c51 d72 o13 q51 q54

fiscal policy in an expectations driven liquidity trap we study the effects of fiscal policy interventions in a liquidity trap in a model with nominal rigidities and an interest rate rule in a liquidity trap caused by a self fulfilling state of low confidence higher government spending has deflationary effects that reduce the spending multiplier when the zero lower bound is binding instead cuts in marginal labor tax rates are inflationary and become more expansionary when the zero lower bound is binding these findings contradict popular views about the effects of fiscal policy in a liquidity trap

the failure of stabilization policy balanced budget fiscal rules in the presence of incompressible public expenditures abstract we consider an infinite horizon neoclassical model with a government that i balances its budget at each point in time ii faces unavoidable incompressible public expenditures and iii further uses a fiscal rule for the share of variable government spending in output with the purpose of stabilizing the economy we show that insulating this economy from belief driven fluctuations is not possible if the government finances these two components of public spending using a distortionary proportional income tax in this case we always have steady state multiplicity two steady states and global indeterminacy while local indeterminacy is also possible more precisely even if a sufficiently procyclical share of the variable government spending component in output is still able to eliminate local indeterminacy two saddle steady states prevail so that depending on expectations the economy may either converge to the low steady state or to the high steady state this implies that a regime switching rational expectation equilibrium where the economy switches between paths converging to the two different steady states easily arises as expectations influence long run outcomes our model is able to generate large and sudden expansions and contractions in response to expectation shocks

slow moving debt crises we study slow moving debt crises self fulfilling equilibria where high interest rates due to fears of higher future default leads to a gradual but faster accumulation of debt ultimately validating investors fears we show that slow moving crises arise in a variety of settings both when fiscal policy follows a given rule or when it is chosen by an optimizing government we discuss how multiplicity is avoided for low debt levels for sufficiently responsive fiscal policy rules and for long enough debt maturities when the equilibrium is unique debt dynamics are characterized by a tipping point below which debt fall and stabilizes and above which debt and default rates grow we provide game theoretic foundations for our approach

where on earth is everybody global matrices of bilateral migrant stocks spanning 1960 2000 are presented disaggregated by gender and based primarily on the foreign born definition of migrants more than one thousand census and population register records are combined to construct decennial matrices corresponding to the five census rounds between 1960 and 2000 for the first time a comprehensive picture of bilateral global migration over the second half of the 20th century emerges the data reveal that the global migrant stock increased from 92 million in 1960 to 165 million in 2000 quantitatively migration between developing countries dominates constituting half of all international migration in 2000 when the partition of india and the dissolution of the soviet union are accounted for migration between developing countries is remarkably stable over the period migration from developing to developed countries is the fastest growing component of international migration in both absolute and relative terms the united states has

globalization brain drain and development this paper reviews four decades of economics research on the brain drain with a focus on recent contributions and on development issues we first assess the magnitude intensity and determinants of the brain drain showing that brain drain or high skill migration is becoming a dominant pattern of international migration and a major aspect of globalization we then use a stylized growth model to analyze the various channels through which a brain drain affects the sending countries and review the evidence on these channels the recent empirical literature shows that high skill emigration need not deplete a country s human capital stock and can generate positive network externalities three case studies are also considered the african medical brain drain the exodus of european scientists to the united states and the role of the indian diaspora in the development of india s information technology sector we conclude with a discussion of the implications of the analysis for education immigration and international taxation policies in a global context

temperature and income reconciling new cross sectional and panel estimates this paper presents novel evidence and analysis of the relationship between temperature and income first using sub national data from 12 countries in the americas we provide new evidence that the negative cross country relationship between temperature and income also exists within countries and even within states second we provide a theoretical framework for reconciling the substantial negative association between temperature and income in the cross section with the even stronger short run effects of temperature estimated by panel models the theoretical framework suggests that half of the negative short term effects of temperature may be offset in the long run through adaptation this abstract was borrowed from another version of this item

climatic factors as determinants of international migration we examine environmental change as a potential determinant of international migration we distinguish between unexpected short run factors captured by natural disasters as well as long run climate change and climate variability captured by deviations and volatilities of temperatures and rainfall from and around their long run averages starting from a simple neo classical model we use a panel dataset of bilateral migration flows for the period 1960 2000 that allows us to control for numerous time varying and time invariant factors we find no direct impact of climatic change on international migration across our entire sample these results are robust when conditioning on characteristics of origin countries as well as when further considering migrants returning home and the potential endogeneity of our network variable in contrast there is evidence of indirect effects of environmental factors going through wages we further find strong evidence that natural disasters beget greater flows of migrants to urban environs

migration risk and liquidity constraints in el salvador abstract this article utilizes panel data from el salvador to investigate the use of transnational migration as an ex post risk management strategy i show that adverse agricultural conditions in el salvador increase both migration to the united states and remittances sent back to el salvador i show that in the absence of any agricultural shocks the probability that a household sent members to the united states would have decreased on average by 24 26 i also show that the 2001 earthquakes reduced net migration to the united states a one standard deviation increase in earthquake damage reduced the average probability of northward migration by 37 11 the evidence suggests that the effects of the earthquakes had more to do with households retaining labor at home to cope with the effects of the disaster than with the earthquakes disrupting migration financing

the perils of taylor rules abstract since john taylor s 1993 carnegie rochester conf ser publ policy39 195 214 seminal paper a large literature has argued that active interest rate feedback rules that is rules that respond to increases in inflation with a more than one for one increase in the nominal interest rate are stabilizing in this paper we argue that once the zero bound on nominal interest rates is taken into account active interest rate feedback rules can easily lead to unexpected consequences specifically we show that even if the steady state at which monetary policy is active is locally the unique equilibrium typically there exist an infinite number of equilibrium trajectories originating arbitrarily close to that steady state that converge to a liquidity trap that is a steady state in which the nominal interest rate is near zero and inflation is possibly negative journal of economic literature classification numbers e52 e31 e63

climate variability and international migration the importance of the agricultural linkage abstract while there is considerable interest in understanding the climate migration relationship particularly in the context of concerns about global climatic change little is known about its underlying mechanisms in the paper we combine a rich panel data on annual bilateral international migration flows with an extensive data on climate variability across the countries to investigate in depth the climate migration link we find a positive and statistically significant relationship between temperature and international outmigration only in the most agriculture dependent countries consistent with the widely documented adverse impact of temperature on agricultural productivity further the temperature migration relationship is nonlinear and resembles the nonlinear temperature yield relationship in addition migration flows to current major destinations are especially temperature sensitive policies to address issues related to climate induced international migration would be more efficient if focused on the agriculture dependent countries and especially people in those countries whose livelihoods depend on agriculture

did sunspot forces cause the great depression abstract we apply a dynamic general equilibrium model to the period of the u s great depression in particular we examine a modification of the real business cycle model in which the possibility of indeterminacy of equilibria arises in other words agents self fulfilling expectations can serve as a primary impulse behind fluctuations we find that the model driven only by these measured sunspot shocks can explain well the entire depression era that is the decline from 1929 to 1932 the subsequent slow recovery and the recession that occurred in 1937 1938

shopping externalities and self fulfilling unemployment fluctuations we propose a novel theory of self fulfilling fluctuations in the labor market a firm employing an additional worker generates positive externalities on other firms because employed workers have more income to spend and have less time to shop for low prices than unemployed workers we quantify these shopping externalities and show that they are sufficiently strong to create s complementarities in the employment decisions of different firms and to generate multiple rational expectations equilibria equilibria differ with respect to agents rational expectations about future unemployment we show that negative shocks to agents expectations lead to fluctuations in vacancies unemployment labor productivity and the stock market that closely resemble those observed in the us during the great recession

trends in rainfall and economic growth in africa a neglected cause of the african growth tragedy abstract we examine the role of rainfall trends in poor growth performance of sub saharan african nations relative to other developing countries using a new cross country panel climatic data set in an empirical economic growth framework our results show that rainfall has been a significant determinant of poor economic growth for african nations but not for other countries depending on the benchmark measure of potential rainfall we estimate that the direct impact under the scenario of no decline in rainfall would have resulted in a reduction of between around 15 and 40 of today s gap in african gdp per capita relative to the rest of the developing world

the laffer curve revisited abstract laffer curves for the us the eu 14 and individual european countries are compared using a neoclassical growth model featuring constant frisch elasticity cfe preferences new tax rate data is provided the us can maximally increase tax revenues by 30 with labor taxes and 6 with capital taxes we obtain 8 and 1 for the eu 14 there 54 of a labor tax cut and 79 of a capital tax cut are self financing the consumption tax laffer curve does not peak endogenous growth and human capital accumulation affect the results quantitatively household heterogeneity may not be important while transition matters greatly

rethinking the role of fiscal policy as recently as two years ago there was a widespread consensus among economists that fiscal policy is not useful as a countercyclical instrument now governments in washington and around the world are developing massive fiscal stimulus packages supported by a wide range of economists in universities governments and businesses why has this change occurred what are the principles for designing a potentially useful fiscal stimulus and what will happen if the current fiscal stimulus fails this abstract was borrowed from another version of this item

some urban facts of life implications for research and policy abstract this review of recent literature explores the challenges to urban food and nutrition security in the rapidly urbanizing developing world the premise of the manuscript is that the causes of malnutrition and food insecurity in urban and rural areas are different due primarily to a number of phenomena that are unique to or exacerbated by urban living these areas include a a greater dependence on cash income b weaker informal safety nets c greater labor force participation of women and its consequences for child care d lifestyle changes particularly diet and exercise patterns e greater availability of public services but questionable access by the poor f greater exposure to environmental contamination and g governance by a new possibly nonexistent set of property rights the main focus is on identifying what is different about urban areas so as to better frame the program and policy responses

urban food subsidies in the context of adjustment the case of zambia abstract one of the most complex policy issues facing many developing country governments over the next decade particularly in sub saharan africa concerns the problem of providing the impoverished sections of urban populations with adequate food at prices they can afford while both meeting the fiscal requirements of adjustment programmes and promoting domestic agricultural production the pressure to reduce urban food subsidies is in many cases already immense and the implications for urban household food security are considerable this article looks at recent zambian experience and suggests that new and more efficient ways of targeting subsidies may be required if levels of food consumption are not to deteriorate still further

self fulfilling deflations abstract what types of monetary and fiscal policy rules produce self fulfilling deflationary paths that are monotonic and empirically relevant this paper presents simple theoretical conditions that guarantee the existence of these paths in a general equilibrium model with sticky prices these sufficient conditions are weak enough to be satisfied by most monetary and fiscal policy rules a quantification of the model which combines a real shock a la hayashi and prescott 2002 with a simultaneous sunspot that deanchors inflation expectations matches the main empirical features of the japanese deflationary process during the lost decade the results also highlight the key role of the assumption about the anchoring of inflation expectations for the size of fiscal multipliers and in general for any policy analysis

an empirical analysis of the revival of fiscal activism in the 2000s an empirical review of the three fiscal stimulus packages of the 2000s shows that they had little if any direct impact on consumption or government purchases households largely saved the transfers and tax rebates the federal government only increased purchases by a small amount state and local governments saved their stimulus grants and shifted spending away from purchases to transfers counterfactual simulations show that the stimulus induced decrease in state and local government purchases was larger than the increase in federal purchases simulations also show that a larger stimulus package with the same design as the 2009 stimulus would not have increased government purchases or consumption by a larger amount these results raise doubts about the efficacy of such packages adding weight to similar assessments reached more than thirty years ago jel e21 e23 e32 e62 h50

networks in the modern economy mexican migrants in the u s labor market this paper attempts to identify job networks among mexican migrants in the u s labor market the empirical analysis uses data on migration patterns and labor market outcomes based on a sample of individuals belonging to multiple origin communities in mexico over a long period of time each community s network is measured by the proportion of the sampled individuals who are located at the destination the united states in any year we verify that the same individual is more likely to be employed and to hold a higher paying nonagricultural job when his network is exogenously larger by including individual fixed effects in the employment and occupation regressions and by using rainfall in the origin community as an instrument for the size of the network at the destination

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

the role of automatic stabilizers in the u s business cycle most countries have automatic rules in their tax and transfer systems that are partly intended to stabilize economic uctuations this paper measures how eective they are at lowering the volatility of u s economic activity we identify seven potential stabilizers in the data and include four theoretical channels through which they may operate in a business cycle model calibrated to the u s data the model is used to compare the volatility of output in the data with counterfactuals where some or all of the stabilizers are shut down our rst nding is that proportional taxes like sales property and corporate income taxes contribute little to stabilization our second