an empirical analysis of wage dispersion and efficiency wages the main purpose of this study is to examine inter industry wage differentials in sweden after controlling for individual and job characteristics the results indicate that these differentials are substantial the ranking of the differentials was stable over time while the dispersion of wage premiums fell by 50 per cent during the period 1968 81 a period of strong efforts to reduce wage dispersion in sweden the relation between industry wage premiums and a number of industry characteristics is also examined along with new evidence which is in line with the shirking model hypothesis on the relation between wages and worker control

on the relevance of export demand conditions for capital income taxation in open economies this paper highlights the role of export demand conditions in determining the real cost of external funding for a country that has unrestricted access to funding from the international capital market at a predetermined real interest rate if such a country enters into a free trade arrangement which includes national treatment provisions for foreign investment then the capital income tax becomes an appropriate second best instrument for ensuring that national welfare is maximized if the capital income tax is set optimally the national return on savings will always be at least as great as the domestic marginal product of capital

capital taxation and accumulation in a life cycle growth model almost all of the serious economic work on savings decisions within the past decade has relied on some variant of the life cycle hypothesis in which savings arise out of individual choices of an optimum lifetime consumption path this paper reexamines the incidence and welfare consequences of capital income taxes within a realistic life cycle model the results suggest that the elimination of capital income taxation would have very substantial economic effects for example a complete shift to consumption taxation might raise steady state output by as much as 18 percent and consumption by 16 percent the long run welfare gain from such a shift would for plausible parameter values exceed 150 billion annually stated somewhat differently shifting to consumption taxation would raise the lifetime utility of the representative consumer by the equivalent of about six years income in the new steady state these estimates dwarf estimates of the static welfare cost of taxation and significantly exceed even extreme previous estimates of the dynamic loss this study departs from earlier analyses of the effects of taxes on capital income in several respects probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving it is shown below that the common two period formulation of saving decisions yields quite misleading results a more realistic model of life cycle savings demonstrates that for a wide variety of plausible parameter values savings are very interest elastic this implies that shifting away from capital income taxation would significantly increase capital formation making possible long run increases in consumption many studies of the welfare effects of capital income taxation have ignored the general equilibrium effects of increased capital formation in an economy with life cycle savings there is no presumption that the undistorted growth path corresponds to any sort of social optimum as peter diamond has shown life cycle savings can lead to a steady state capital intensity either greater or less than the golden rule level more generally it is clear that there is no reason to believe that a life cycle economy will maximize any particular intertemporal social welfare function a fundamental tenet of welfare evaluation is that preexisting distortions must be considered in evaluating the consequences of tax changes the results presented in this paper take explicit account of the nonoptimal character of the no tax steady state this explains in large part why such a sizeable welfare effect of capital taxes is found in an economy far from the golden rule level of capital intensity there are substantial gains in steady state consumption achievable through increased capital formation section i of the paper examines the aggregate savings function in a continuous time life cycle framework the second section clarifies the differences between wage and consumption taxes an aggregate production function is added to complete the model in the third section the effects of changes in capital taxes on both steady state incidence and welfare are considered within a general equilibrium framework the final section of the paper discusses some implications of the results and suggests areas which appear to warrant further study assistant professor of economics massachusetts institute of technology and research analyst national bureau of economic research i am grateful to alan auerbach martin feldstein laurence kotlikoff to the participants in the nber workshop on business taxation and to the harvard public finance seminar for useful discussions james poterba and james buchal performed the numerical calculations

recent developments in consumer credit and default literature this survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default and some ongoing challenges for the literature key topics include the sources of the rise in personal bankruptcies the importance of asymmetric information and the effects of developments in information technologies on consumer credit markets delinquency and informal bankruptcy debt collection and restructuring of distressed debt the cyclical behavior of consumer debt and default and the insurance role of household debt implications for welfare analysis and policy design are discussed several theoretical contributions and approaches to modeling the consumer credit markets are also highlighted

cultural distance and income divergence over time instead of featuring a long awaited convergence process the second half of the twentieth century witnessed a dramatic income divergence across countries we propose cultural distance between countries as a determinant of this economic divergence cultural similarity makes it easier for societies to interact learn and adopt from one another consequently cultural differences may lead to economic divergence over time as they slow down the adoption of technological and institutional innovations from the frontier countries we show that the overall economic divergence observed in the world since the 1950s is driven by countries with high relative cultural distance to the technological frontier in contrast the income gap among countries with low relative cultural distance remained unchanged over time further analysis reveals that a one unit rise in relative cultural distance to the frontier is associated with an increased income divergence of almost seven units

consumption externalities and monetary policy with limited asset market participation this article explores the interaction between consumption externalities and limited asset market participation lamp in the standard new keynesian model we assess the performance of simple taylor type interest rate rules with respect to a equilibrium determinacy b the model s ability to simultaneously generate output and inflation volatility similar to the pre volcker era and c the model s response to a technology shock we find that when individual preferences are affected by average household consumption aggregate consumption externality stronger externalities increase the range of lamp for which multiple equilibria arise even if the policy rule satisfies the taylor principle the interaction of lamp and externalities can generate vast inflation output relative volatility in line with the one observed in the data in the 1970s according to our analysis consumption externalities also affect the responses of endogenous variables to total factor productivity shocks jel e4 e5

migration diversity and economic growth when migrants move from one country to another they carry a new range of skills and perspectives which nurture technological innovation and stimulate economic growth at the same time increased heterogeneity may undermine social cohesion create coordination and communication barriers and adversely affect economic development in this article we investigate the extent to which cultural diversity affects economic growth and whether this relation depends on the level of development of a country we use novel data on bilateral migration stocks that is the number of people living and working outside the countries of their birth over the period 1960 2010 and compute indices of fractionalization and polarization in so doing we explore the effect of immigration on development through its effect on the composition of the destination country we find that overall both indices have a distinct positive impact on real gdp per capita and that the effect of diversity seems to be more consistent in developing countries

trickle down consumption financial deregulation inequality and indebtedness over the last thirty years the u s experienced a surge in income inequality coupled with increasing levels of borrowing we model an olg economy populated by two types of household that care about how their consumption compares to that of their peers in this framework individual debt to income ratios decrease with income increases in consumption of rich households lead to increases in consumption of the rest and aggregate borrowing increases with income inequality we calibrate our model to evaluate the welfare implications of the process of nancial liberalization that began in the 1980s our analysis suggests that some of the nancial developments that lead to the recent expansion of credit may have decreased rather than increased welfare

public utility finance and the cost of capital comments on jenkins glenn p jenkins has argued that the price of electricity in canada should be raised as much as 63 per cent because of an inadequate rate of return on past utility investments however jenkins calculated his recommended price from historical average utility costs which are probably a poor representation of marginal costs moreover jenkins assumed that 10 per cent is the appropriate real rate of return on capital recent research suggests that the rate of return should be around 6 per cent a major increase in the price of electricity could be damaging to economic welfare

genetic distance trade and the diffusion of development the determinants of countries long term income differences feature prominently in the literature spolaore and wacziarg the diffusion of development quarterly journal of economics 2009 124 469 529 argue that cultural differences measured by countries genetic distance are an important barrier to the diffusion of development from the world s technological frontier we revisit their findings in three ways first we successfully reproduce their results and confirm the robustness of their baseline findings second we estimate their models for different time periods and find that the impact of genetic distance on income differences did not significantly change over time finally we explore one of the underlying mechanisms of technology adoption and show that bilateral trade is one channel through which cultural differences retard the diffusion of development less

does schooling cause growth a number of economists find that growth and schooling are highly correlated across countries a model is examined in which the ability to build on the human capital of one s elders plays an important role in linking growth to schooling the model is calibrated to quantify the strength of the effect of schooling on growth by using evidence from the labor literature on mincerian returns to education the upshot is that the impact of schooling on growth explains less than one third of the empirical cross country relationship the ability of reverse causality to explain this empirical relationship is also investigated

income redistribution consumer credit and keeping up with the riches in this study we set up a dynamic stochastic general equilibrium dsge model with upward looking consumption comparison and show that consumption externalities are an important driver of consumer credit dynamics our model economy is populated by two different household types investors who hold the economy s capital stock own the firms and supply credit and workers who supply labor and demand credit to finance consumption furthermore workers condition their consumption choice on the investors level of consumption we estimate the model and find a significant keeping up mechanism by matching business cycle statistics in reproducing credit moments our proposed model significantly outperforms a model version in which we abstract from consumption externalities

household debt and social interactions can concern with relative standing which has been shown to influence consumption and labor supply also increase borrowing and the likelihood of financial distress we find that perceived peer income contributes to debt and the likelihood of financial distress among those who consider themselves poorer than their peers we use unique responses describing perceived peer characteristics from a dutch population wide survey to handle two major challenges of uncovering social interaction effects on borrowing 1 debts unlike conspicuous consumption are often hidden from peers and 1 location is missing in anonymized data we employ several approaches to uncover exogenous rather than correlated effects

consumer bankruptcy a fresh start consumer bankruptcy provides partial insurance against bad luck but by driving up interest rates makes life cycle smoothing more difficult we argue that to assess this trade off one needs a quantitative model of consumer bankruptcy with three key features life cycle component idiosyncratic earnings uncertainty and expense uncertainty exogenous negative shocks to household balance sheets we find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules more persistent shocks make the bankruptcy option more desirable larger transitory shocks have the opposite effect our findings suggest the current us bankruptcy system may be desirable for reasonable parameter values jel d14 d91 k35

socioeconomic background and the returns to schooling in two low income economies in the united kingdom the increment to income yielded by an additional year of schooling declines as the occupational status of the worker s father rises in this note the relationship between family background and the returns to schooling is measured in kenya and tanzania in contrast to the united kingdom a positive relationship is documented several explanations for this marked difference between a high income economy and two low income economies are suggested copyright 1987 by the review of economic studies limited

economic development and the return to human capital a smooth coefficient semiparametric approach this paper investigates the impact of human capital on the process of economic growth by allowing the contribution of traditional inputs capital and labour as well as that of human capital to vary both across countries and time the former is accomplished by constructing an index of tfp growth for traditional inputs while the latter through semiparametric methods we derive estimates of the output elasticity and social return to human capital for 51 countries at various stages of economic development copyright 2005 john wiley sons ltd

which sectors make poor countries so unproductive which sectors are most responsible for the low total factor productivities of developing countries to answer this question we develop a new framework for sectoral development accounting applying this framework to the penn world table we find that in equipment construction and food the sectoral tfp differences between developing countries and the united states are much larger than in the aggregate however in manufactured consumption the sectoral tfp differences are about equal to the aggregate tfp differences and in services they are much smaller we show that our level of disaggregation allows us to reconcile the results of existing studies of sectoral productivity differences which have focused on noncomparable two sector decompositions of the aggregate data we also show that our results help shed light on existing theories of aggregate tfp differences

growth or stagnation the role of public education abstract this paper presents a political economic theory of growth and human capital accumulation where individuals of different ages disagree over the resource commitment to public education in the context of an overlapping generations model with two period lived agents population growth implies that the equilibrium quantity of public education reflects the preferences of youth and is therefore forward looking despite forward looking behavior it is shown that sufficiently rapid population growth can trigger economic stagnation in the political economic equilibrium the model therefore offers a novel explanation for observed negative correlations between population growth measures and economic growth

human capital and growth abstract this paper describes a growth model with the property that human capital accumulation can account for all observed growth the model is shown to be consistent with evidence on individual productivities as measured by census earnings data the central hypothesis is that we learn more when we interact with more productive people

economic growth and the structure of long term development this volume collects some of the papers presented at the 82nd round table conference of the international economic association that was organised in collaboration with fondazione eni enrico mattei the book considers different approaches to the analysis of economic growth and it is organised in five parts par i is devoted to empirical evidence part ii contains six papers which present a series of models based on different approaches but with special emphasis on endogenous growth and on schumpeterian models of growth and fluctuations part iii of the book is devoted to the impact of international trade on economic development part iv examines the effects of economic development on the natural environment the final part of the book part v contains the concluding evaluations contributors p aghion r aversi d ben david g bertola o castellino f donati g dosi w easterly s fabiani c freeman r goodwin j helliwell e helpman p howitt r king m landesmann r levine s lombardini k g maler w d nordhaus l l pasinetti s rebelo a sen l soete r m solow m syrquin b verspagen s zervos

iq in the production function evidence from immigrant earnings the cross country growth literature especially sala i martin 1997 sala i martin doppelhofer and miller 2004 has found that traditional education measures rarely have a robust relationship with growth and productivity elementary education being a rare exception by contrast a new empirical growth literature jones and schneider 2006 lynn and vanhanen 2002 ram 2007 weede 2004 weede and kampf 2002 has shown that a nation s average iq has a remarkably robust relationship with its productivity figure 1 that a test designed by psychologists should have such a robust relationship with economic variables is a puzzle that demands explanation for instance jones and schneider showed that national average iq was more robust than other human capital variables and was statistically significant at the 1 level in all 455 growth regressions that controlled for all 18 factors that passed sala i martin doppelhofer and miller s 2004 robustness tests of course as with all the growth regression literature a key difficulty is disentangling cause and effect thus in this article we run no growth regressions whatsoever instead we perform a simple calibration of the iq productivity relationship based on widely agreed upon microeconomic parameters that means we can directly estimate one causal channel running from cognitive ability to productivity in the process we learn the following 1 if one knows the average iq of a nation s citizens as estimated by lynn and vanhanen 2002 2006 one can predict the average wages that immigrants from that country will earn upon their arrival in the united states whether or not one controls for immigrant education and even if the test is completely visual rather than verbal in other words national average iq predicts part of what hendricks 2002 calls unmeasured worker skill 2 we find that a 1 point increase in national average iq predicts 1 higher immigrant wages precisely the value found repeatedly in microeconometric studies note that by construction 1 iq point approximately equal to 1 15th of a standard deviation within any large national population together points 1 and 2 provide further evidence that cross country iq tests are valid predictors of worker productivity 3 when iq is added to the production function in the form implied by traditional externality free human capital theory differences in national average iq are quantitatively significant in explaining cross country income differences that said our productivity accounting exercise does not resolve the puzzle of why high iq countries are 15 times richer than low iq countries in a related vein hanushek and kimko 2000 use national math and science test scores to verify that cognitive skills appear to matter more for groups than for individuals like us they use immigrants to the united states as a way to test whether immigrants bring their home country productivity levels along with them when they immigrate to the united states when they interpret their results within a solow type framework they conclude that the cross country growth equation results are much larger than the corresponding results for individual earnings in sum our article rigorously explores the quantitative magnitude of the puzzle uncovered by hanushek and kimko 2000 and hanushek and woessman 2007 but by using iq tests rather than other widely used math and science test scores we can often double our sample size while simultaneously using the most widely analyzed best understood form of cognitive test we begin with an overview of the recent psychological literature on the validity of iq tests and then proceed to our discussion of the link between iq and immigrant wages the discussion of iq and immigrant wages yields a key parameter gamma the iq semi elasticity of wages which we use in our development accounting exercise we then discuss the questions of reverse causality and trends in the iq productivity relationship over the past 40 yr and conclude by discussing how our results fit into the growth literature

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

the impact of education on subjective discount rate in ugandan villages abstract heterogeneity in time discounting may reinforce the existing barriers to save and invest faced by rural populations in developing countries we elicit a subjective discount rate for a varied sample of ugandan villagers in accordance with other studies we have found the discount rate to decrease with education we examine this correlation further by testing the causal effect of education and exploit two different sources of its variation school frequency across villages and the number of the respondents school going years that overlap with the era of the dictator idi amin s rule for men we find that education has a significant impact on their discount rate similar in magnitude for both types of instruments and robust to observable characteristics this finding highlights the importance of education in development

recent developments in consumer credit and default literature consumer credit and default literature this survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default and some ongoing challenges for the literature key topics include the sources of the rise in personal bankruptcies the importance of asymmetric information and the effects of developments in information technologies on consumer credit markets delinquency and informal bankruptcy debt collection and restructuring of distressed debt the cyclical behavior of consumer debt and default and the insurance role of household debt implications for welfare analysis and policy design are discussed several theoretical contributions and approaches to modeling the consumer credit markets are also highlighted

domestic saving and international capital movements in the long run and the short run the evidence and analysis in this paper support the earlier findings of feldstein and horioka 1980 that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment new estimates for the post opec period 1974 79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 oecd countries an explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long run response of international capital flows than to their short run behavior coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross country sample of these averages a portfolio model of international capital allocation that is presented in the paper indicates that the short run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

investment shocks and business cycles abstract the origins of business cycles are still controversial among macroeconomists this paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the u s economy in this model most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment imperfect competition and to a lesser extent technological frictions are the key to their transmission although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies they are irrelevant over the business cycle this finding is important because the microfoundations of these disturbances are widely regarded as unappealing

human capital and industrialization evidence from the age of enlightenment while human capital is a strong predictor of economic development today its importance for the industrial revolution is typically assessed as minor to resolve this puzzling contrast we differentiate average human capital worker skills from upper tail knowledge both theoretically and empirically we build a simple two sector model where worker skills raise the productivity in both agriculture and manufacturing and scientific knowledge affects the entrepreneurial ability to keep up with a rapidly advancing technological frontier the model predicts that the local presence of knowledge elites is unimportant in the pre industrial era but drives growth thereafter worker skills in contrast are not crucial for growth to measure the historical presence of knowledge elites we use city level subscriptions to the famous encyclopedie in mid 18th century france we show that subscriber density is a strong predictor of city growth after 1750 but not before the onset of french industrialization alternative measures of development confirm this pattern soldier height and industrial activity are strongly associated with subscriber density after but not before 1750 literacy on the other hand does not predict growth finally by joining data on british patents with a large french firm survey from 1837 we provide evidence for the mechanism upper tail knowledge raised the productivity in innovative industrial technology

trickle down consumption abstract we document that nonrich households consume a larger share of their current income when exposed to higher top income and consumption levels permanent income wealth effects and upward local price pressures cannot provide the sole explanation for this finding instead we show that the budget shares that nonrich households allocate to more visible goods and services rise with top income levels consistent with status maintaining explanations for our primary finding nonrich households might have saved up to 3 more annually by the mid 2000s had incomes at the top grown at the same rate as median income since the early 1980s

latin america in the rearview mirror abstract latin american countries are the only western countries that are poor and that are not gaining ground on the u s this paper evaluates why latin america has not replicated western economic success we find that this failure is primarily due to tfp differences latin america s tfp gap is not plausibly accounted for by human capital differences but rather reflects inefficient production we argue that competitive barriers are a promising channel for understanding low latin tfp we document that latin america has many more international and domestic competitive barriers than do western and successful east asian countries we also document a number of microeconomic cases in latin america in which large reductions in competitive barriers increase latin american productivity to western levels

jealousy and equilibrium overconsumption the idea that the happiness of an individual depends upon the consumption of others is widely viewed as an important feature of our shared social existence recent research in finance has used this idea through consumption externalities to explore asset pricing anomalies consumption externalities potentially break the link between pareto optimality and competitive equilibria and open the door for beneficial government intervention e g lars ljungqvist and harald uhlig 2000 in this paper we delineate two effects that a consumption externality may have an increase in aggregate consumption may a raise the marginal utility of individual consumption relative to leisure and or b lower an individual s utility level we refer to a as keeping up with the joneses henceforth kuj following jordi gali 1994 and we refer to b as jealousy jealousy is a distinct concept from kuj under kuj an individual derives greater utility from additional own consumption relative to leisure when others consume more at the same time higher per capita consumption holding fixed individual consumption can trigger either jealousy so that individual utility falls or admiration so that individual utility rises in section i of this paper we show that jealousy implies that the laissez faire equilibrium consumption level is greater than the optimal level whether preferences exhibit kuj is not necessary for this main result intuitively in the presence of jealousy consumption is similar to pollution overpollution exists because individuals do not take into account the cost of polluting on others not because an increase in economywide pollution makes the return to individual polluting higher similarly overconsumption exists because individuals do not take into account the negative effect of own consumption on jealous others things go in the opposite direction when individuals are admiring in section ii we consider a functional form that encompasses several existing models we show that jealousy determines the optimal tax to correct overconsumption and that kuj is mainly important for asset pricing

economic demographic and institutional determinants of life insurance consumption across countries life insurance has become an increasingly important part of the financial sector over the past 40 years providing a range of financial services for consumers and becoming a major source of investment in the capital market but what drives the large variation in life insurance consumption across countries remains unclear using a panel with data aggregated at different frequencies for 68 economies in 1961 2000 this article finds that economic indicators such as inflation income per capita and banking sector development and religious and institutional indicators are the most robust predictors of the use of life insurance education life expectancy the young dependency ratio and the size of the social security system appear to have no robust association with life insurance consumption the results highlight the importance of price stability and banking sector development in fully realizing the savings and investment functions of life insurance in an economy

wage dispersion over the business cycle abstract in this paper i provide robust evidence that fluctuations in wage dispersion are independent of the business cycle while residual wage dispersion i e dispersion of wages within narrowly defined demographic and skill groups of workers increases during booms and lessens during recessions moreover i show that the procyclical fluctuations in residual wage dispersion are mainly generated by cyclical changes in the upper half of the residual wage distribution

learning and the great moderation we study a stylized theory of the volatility reduction in the u s after 1984 the great moderation which attributes part of the stabilization to less volatile shocks and another part to more difficult inference on the part of bayesian households attempting to learn the latent state of the economy we use a standard equilibrium business cycle model with technology following an unobserved regime switching process after 1984 according to kim and nelson 1999a the variance of u s macroeconomic aggregates declined because boom and recession regimes moved closer together keeping conditional variance unchanged in our model this makes the signal extraction problem more difficult for bayesian households and in response they moderate their behavior reinforcing the effect of the less volatile stochastic technology and contributing an extra measure of moderation to the economy we construct example economies in which this learning effect accounts for about 30 of a volatility reduction of the magnitude observed in the postwar u s data

education lifetime labor supply and longevity improvements this paper presents an analysis of the differential role of mortality for the optimal schooling and retirement age when the accumulation of human capital follows the so called ben porath mechanism we set up a life cycle model of consumption and labor supply at the extensive margin that allows for endogenous human capital formation this paper makes two important contributions first we provide the conditions under which a decrease in mortality leads to a longer education period and an earlier retirement age second those conditions are decomposed into a ben porath mechanism and a lifetime human wealth effect vs the years to consume effect finally using us and swedish data for cohorts born between 1890 and 2000 we show that our model can match the empirical evidence

cultural constraints on innovation based growth to what extent does the cultural composition of a society impose a constraint on its long run growth potential we study this question in the context of an innovation based model of growth where cultural attitudes are endogenously transmitted from one generation to the next focusing on attitudes regarding patience we analyze the two way interaction between economic growth and the intergenerational transmission of patience exploiting this interaction we compare the long run growth performance of a culturally heterogeneous society where patience is initially underrepresented in the population with a culturally homogeneous society where all agents are perfectly patient our main result is that in the absence of any intrinsic preferences of patient parents to transmit their attitudes to their children the development paths of the two societies are bound to diverge with the culturally heterogeneous society experiencing lower growth rates yet if patient parents ceteris paribus prefer their children to be patient like them we show that the two societies can in the long run grow at the same rate jel d91 e24 o30 o40 z10

real interest rates home goods and optimal external borrowing the paper investigates the optimal time path of consumption and external borrowing in the dependent economy model the small country faces given world prices and a given world real interest rate the presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home goods the paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption and the trade balance in particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in the world interest rate

household debt and labor market fluctuations abstract the co movements of labor productivity with output total hours vacancies and unemployment have changed since the mid 1980s this paper offers an explanation for the sharp break in the fluctuations of labor market variables based on endogenous labor supply decisions following the mortgage market deregulation we set up a search model with efficient bargaining and financial frictions in which impatient borrowers can take an amount of credit that cannot exceed a proportion of the expected value of their real estate holdings when borrowers equity requirements are low the impact of a positive technology shock on the marginal utility of consumption is strengthened which in turn results in lower hours per worker and higher wages in the bargaining process this shift in labor supply discourages firms from opening vacancies reducing the impact of the shock on employment we simulate the effects of an increase in both the loan to value ratio and the share of borrowers in total population our exercise shows that the response of labor market variables might have been substantially affected by the increase in household leverage in the us in the last twenty years

the medium run effects of educational expansion evidence from a large school construction program in indonesia this paper studies the medium run consequences of an increase in the rate of accumulation of human capital in a developing country from 1974 to 1978 the indonesian government built over 61 000 primary schools the school construction program led to an increase in education among individuals who were young enough to attend primary school after 1974 but not among the older cohorts 2sls estimates suggest that an increase of 10 percentage points in the proportion of primary school graduates in the labor force reduced the wages of the older cohorts by 3 8 10 and increased their formal labor force participation by 4 7 i propose a two sector model as a framework to interpret these findings the results suggest that physical capital did not adjust to the faster increase in human capital

vignettes on the world capital market this paper is motivated by a sense that we as a profession need to understand much better than we now do how the world capital market works we seem to be genuinely schizophrenic in the ways we build models many of them are closedeconomy models in which the rest of the world does not even appear yet others of them are models of the small open economy in which hardly any degree of freedom is left for economic policy to influence events lying behind the schizophrenia is i believe a genuine ignorance on our collective part of how the world capital market

education growth and income inequality estimates of the effect of education on gdp the social return have been hard to reconcile with micro evidence on the private return to schooling we present a simple explanation combining two ideas imperfect substitution and endogenous skill biased technological progress and use cross country panel data on inequality and gdp to test these ideas a one year increase in the level of education reduces the private return by 2 percentage points consistent with katz murphy s 1992 elasticity of substitution we find no evidence for reversal of this initial effect as in acemoglu 2002 in the short run the social return equals the private return

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded