nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒01‒17
six papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Tax Havens, Growth, and Welfare By Chu, Hsun; Lai, Ching-Chong; Cheng, Chu-Chuan
  2. Is Public Debt Growth-Enhancing or Growth-Reducing? By Real Arai; Takuma Kunieda; Keigo Nishida
  3. The Uzawa-Lucas Growth Model with Natural Resources By Neustroev, Dmitry
  4. “Tracking positive and negative effects of inequality on long-run growth” By David Castells-Quintana; Vicente Royuela
  5. Can policy boost growth? By John H. Makin
  6. Does Financial Liberalization, Spur Economic Growth and Poverty Reduction in Six Sub-Saharan African Countries; Panel Unit Root and Panel Vector Error Correction Tests By Dandume, Muhammad Yusuf; A.C., Dr.Malarvizhi

  1. By: Chu, Hsun; Lai, Ching-Chong; Cheng, Chu-Chuan
    Abstract: This paper develops an endogenous growth model featuring tax havens, and uses it to examine how the existence of tax havens affects the economic growth rate and social welfare in high-tax countries. We show that the presence of tax havens generates two conflicting channels in determining the growth effect. First, the public investment effect states that tax havens may erode tax revenues and in turn decrease the government’s infrastructure expenditure, thereby reducing growth. Second, the tax planning effect of tax havens reduces marginal cost of capital and hence encourages capital accumulation so as to spur economic growth. The overall growth effect is ambiguous and is determined by the extent of these two effects. The welfare analysis shows that tax havens are more likely to be welfare-enhancing if the government expenditure share in production is low, or the initial income tax rate is high. Moreover, the welfare-maximizing income tax rate is lower than the growth-maximizing income tax rate if tax havens are present.
    Keywords: tax havens, endogenous growth, optimal income tax
    JEL: H21 H26 O11 O40
    Date: 2013–09
  2. By: Real Arai (Graduate School of Social Sciences, Hiroshima University); Takuma Kunieda (Department of Economics and Finance,City University of Hong Kong); Keigo Nishida (Faculty of Economics, Fukuoka University)
    Abstract: To understand mixed evidence provided by empirical studies for the relationship between the accumulation of public debt and economic growth, it is necessary to consider not only the crowd-out effect of public debt on economic growth but also the growth-enhancing crowd-in effect that cannot be uncovered by the traditional theoretical achievements. We develop a dynamic general equilibrium model with infinitely lived agents and derive an inverted U-shaped relationship between the accumulation of public debt and economic growth. The analysis focuses on both crowd-out and crowd-in effects that public debt has on private investment in a financially constrained economy and clarifies the mechanism inducing the inverted U-shaped relationship in the growth process. When the public debt-to-GDP ratio is below a certain threshold level, the crowd-in effect dominates the crowd-out effect and the accumulation of public debt promotes economic growth. When the public debt-to-GDP ratio exceeds the threshold level, the accumulation of public debt begins to hinder economic growth with the crowd-out effect dominating the crowd-in effect.
    Keywords: Economic growth; Public debt; Crowd-in effect; Financial market imperfections
    JEL: O41 E62
    Date: 2014–01
  3. By: Neustroev, Dmitry
    Abstract: This article offers the modification of the Uzawa-Lucas growth model. The model also includes natural resources as a factor of production. The necessary and sufficient conditions for this model are considered. Growth rates of the main macroeconomic indicators along balanced growth path are obtained. The analysis of influence of natural resources on economic growth along balanced growth path is considered.
    Keywords: Uzawa-Lucas model, human capital, natural resources
    JEL: C61 O41
    Date: 2013
  4. By: David Castells-Quintana (Faculty of Economics, University of Barcelona); Vicente Royuela (Faculty of Economics, University of Barcelona)
    Abstract: Despite extensive research, there is still controversy on the effects of income inequality on economic growth. The literature proposes several transmission channels through which these effects may take place, and even the existence of two different forms of inequality. However, empirical studies have generally not distinguished between these channels, nor have their analyses included a consideration of the two forms of inequality and their separate effects on growth. In this paper we review the theory and the evidence on the different transmission channels through which inequality influences growth. We contribute to the literature by using a system of recursive equations, following a control function approach, to empirically assess the relevance of these channels and to differentiate between two forms of inequality. In this way we have captured in a single model not only a negative effect, but also a positive effect of inequality on long-run economic growth.
    Keywords: inequality, economic growth, development. JEL classification: O1, O4
    Date: 2014–01
  5. By: John H. Makin (American Enterprise Institute)
    Abstract: While improving long-term growth is difficult, the best places to begin are with advances in areas such as tax reform, deregulation, and freer trade. These structural measures, along with efforts to reduce current high levels of policy uncertainty, might help boost sustainable, long-term economic growth.
    Keywords: Monetary and fiscal policy,economic stagnation,Economic outlook,Economic growth
    JEL: A
    Date: 2014–01
  6. By: Dandume, Muhammad Yusuf; A.C., Dr.Malarvizhi
    Abstract: This paper examines the linkage among financial liberalization, economic growth and poverty reduction in Sub-Saharan African countries (SSA). The study applies the recent panel Co-integration and vector error correction mechanism to address the heterogeneity and cross-border interdependence over the period of 1980 to 2010. The results reveal that economic growth is positively associated with poverty reduction and financial liberalization coefficients are positively related to economic growth. It implies that financial liberalization causes economic growth. However, the coefficients of financial liberalization are not significant in the poverty equation suggests that financial liberalization does not have direct impact on poverty reduction in the six Sub-Saharan African countries. This implies that the financial liberalization effects of poverty are upon contingent on the distributional changes introduced by the growth and the configuration of institutions and policies that supported the liberalization process and particularly, the existence or otherwise of good governance.
    Keywords: Liberalization, poverty, economic growth, financial repression
    JEL: G0
    Date: 2014–02

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