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on Financial Development and Growth |
| By: | Szarowska, Irena |
| Abstract: | The complexity of today’s global economic environment increases importance of identifying and understanding the key factors affecting economic growth. This paper deals with effect of changes in tax burden on economic growth and provides direct empirical evidence in the European Union as financial and economic crisis has impacted also on tax systems. It is used the Eurostat´s definition to categorize tax burden by economic functions and implicit tax rates of consumption, labour and capital are investigated. The analysis is based on annual panel data of 24 EU member states in a period 1995-2010. Panel regression and Pairwise Granger Causality Tests are used as the main method of research. Results confirm, in line with the theory, statistically significant positive effect of consumption taxes and negative effect of labour taxes on GDP growth. In short-term, there is two-way causality between change of implicit tax rate of consumption and GDP growth and one-way causality between GDP growth and change of implicit tax rate of capital and implicit tax rate of labour. |
| Keywords: | tax burden, implicit tax rates, economic functions, economic growth, competitiveness |
| JEL: | E62 H21 H30 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:59781&r=fdg |
| By: | Harenberg, Daniel; Ludwig, Alexander |
| Abstract: | When markets are incomplete, social security can partially insure against idiosyncratic and aggregate risks. We incorporate both risks into an analytically tractable model with two overlapping generations and demonstrate that they interact over the life-cycle. The interactions appear even though the two risks are orthogonal and they amplify the welfare consequences of introducing social security. On the one hand, the interactions increase the welfare benefits from insurance. On the other hand, they can in- or decrease the welfare costs from crowding out of capital formation. This ambiguous effect on crowding out means that the net effect of these two channels is positive, hence the interactions of risks increase the total welfare benefits of social security. |
| Keywords: | social security,idiosyncratic risk,aggregate risk,welfare,insurance,crowding out |
| JEL: | C68 E27 E62 G12 H55 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:71&r=fdg |
| By: | Andrew M. Warner |
| Abstract: | This paper looks at the empirical record whether big infrastructure and public capital drives have succeeded in accelerating economic growth in low-income countries. It looks at big long-lasting drives in public capital spending, as these were arguably clear and exogenous policy decisions. On average the evidence shows only a weak positive association between investment spending and growth and only in the same year, as lagged impacts are not significant. Furthermore, there is little evidence of long term positive impacts. Some individual countries may be exceptions to this general result, as for example Ethiopia in recent years, as high public investment has coincided with high GDP growth, but it is probably too early to draw definitive conclusions. The fact that the positive association is largely instantaneous argues for the importance of either reverse causality, as capital spending tends to be cut in slumps and increased in booms, or Keynesian demand effects, as spending boosts output in the short run. It argues against the importance of long term productivity effects, as these are triggered by the completed investments (which take several years) and not by the mere spending on the investments. In fact a slump in growth rather than a boom has followed many public capital drives of the past. Case studies indicate that public investment drives tend eventually to be financed by borrowing and have been plagued by poor analytics at the time investment projects were chosen, incentive problems and interest-group-infested investment choices. These observations suggest that the current public investment drives will be more likely to succeed if governments do not behave as in the past, and instead take analytical issues seriously and safeguard their decision process against interests that distort public investment decisions. |
| Keywords: | Public investment;External borrowing;Mexico;Bolivia;Korea, Republic of;Taiwan Province of China;Philippines;Capital expenditure;Infrastructure;Economic growth;Cross country analysis;Public Investment; Infrastructure; Economic Growth; Public Capital; Big Push |
| Date: | 2014–08–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:14/148&r=fdg |
| By: | Stacie Beck (Department of Economics, University of Delaware); Soodong Park |
| Abstract: | The tax competition hypothesis is that market integration places downward pressure on capital taxes and social expenditures. The compensation hypothesis asserts that market integration results in increased social expenditures and higher tax burdens. Using panel data over 1980-2012 from 26 OECD countries, we found evidence of their coexistence and interaction. We find that the negative effects of social spending and tax policy on labor force participation are heightened in open economies, with a stronger impact from compensative social expenditures. Increased social expenditures reduce labor force participation directly and also indirectly through a higher labor tax burden. |
| Keywords: | fiscal policy; open economy; labor force participation; tax competition; compensation hypothesis; panel VAR |
| JEL: | H20 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:dlw:wpaper:14-16&r=fdg |
| By: | Clancy, Daragh; Jacquinot, Pascal; Lozej, Matija |
| Abstract: | Small open economies within a monetary union have a limited range of stabilisation tools, as area-wide nominal interest and exchange rates do not respond to country-specific shocks. Such limitations imply that imbalances can be difficult to resolve. We assess the role that government spending can play in mitigating this issue using a global DSGE model, with an extensive fiscal sector allowing for a rich set of transmission channels. We find that complementarities between government and private consumption can substantially increase spending multipliers. Government investment, by raising productive public capital, improves external competitiveness and counteracts external imbalances. An ex-ante budget-neutral switch of government expenditure towards investment has beneficial effects in the medium run, while short-run effects depend on the degree of co-movement between private and government consumption. Finally, spillovers from a fiscal stimulus in one region of a monetary union depend on trade linkages and can be sizeable. JEL Classification: E22, E62, H54 |
| Keywords: | fiscal policy, imbalances, public capital, trade |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141727&r=fdg |
| By: | Pierpaolo Benigno; Gauti B. Eggertsson; Federica Romei |
| Abstract: | This paper studies optimal monetary policy under dynamic debt deleveraging once the zero bound is binding. Unlike the existing literature, the natural rate of interest is endogenous and depends on macroeconomic policy. Optimal monetary policy successfully raises the natural rate of interest by creating an environment that speeds up deleveraging, thus endogenously shortening the duration of the crisis and a binding zero bound. Inflation should be front loaded. Fiscal-policy multipliers can be even higher than in existing models, but depend on the way in which public spending is financed. |
| JEL: | E31 E32 E52 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20556&r=fdg |
| By: | Eric M. Leeper; James M. Nason |
| Abstract: | This paper arms central bank policy makers with ways to think about interactions between financial stability and monetary policy. We frame the issue of whether to integrate financial stability into monetary policy operating rules by appealing to the observation that in actual economies financial markets are incomplete. Incomplete markets create financial market frictions that prevent economic agents from perfectly sharing risk; in the absence of frictions, financial (in)stability would be of no concern. Overcoming these frictions to improve risk sharing across economic agents is, in our view, the intent of policies geared toward ensuring financial stability. There are many definitions of financial stability. Although the definitions share the notion that financial stability becomes an issue for policy makers when a breakdown in risk-sharing arrangements in financial markets has a negative effect on real economic activity, we give several examples that show this notion is too general for thinking about the role that monetary policy might have in smoothing shocks to financial stability. Examples include statistical models that seek to separate “good” from “bad” changes in private-sector debt aggregates, new Keynesian policy prescriptions grounded in neo-Wicksellian natural rate rules, and a historical episode involving the 1920s Federal Reserve. These examples raise a cautionary flag for policy attempts to control both the growth and the composition of debt that financial markets produce. We conclude with some advice for revising central banks’ Monetary Policy Reports. |
| Keywords: | Financial frictions, incomplete markets, crises, new Keynesian, natural rate, monetary transmission mechanism. |
| JEL: | E3 E4 E5 E6 G2 N12 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2014-72&r=fdg |
| By: | Frauke Schleer; Willi Semmler (Schwartz Center for Economic Policy Analysis (SCEPA)) |
| Abstract: | We analyze the feedback mechanisms between economic downturns and financial stress for several euro area countries. Our study employs newly constructed financial condition indices that incorporate banking variables extensively. We apply a non-linear Vector Smooth Transition Autoregressive (VSTAR) model for investigating instabilities in the link between the financial sector and economic activity. The VSTAR model allows for non-linear dynamics and regime changes between low and high stress regimes. It can also replicate the regime-specifc amplification effects shown by our theoretical model. The amplification effects, however, change over time. Specifically after the Lehman collapse, we observe the presence of strong non-linearities and amplification mechanisms for some euro area countries. Thus, these strong amplification effects appear to be related to rare but large events, and to a low-frequency financial cycle. Prior to the financial crisis outbreak we find corridor stability even if the financial sector shock takes place in a high stress regime. More important seems to be the shock propagation over time in the economy. Only with the occurrence of the rare but large events we find strong endogenous feedback loops and a loss of stability as described by the high stress regime of our theoretical model. The economy leaves the corridor of stability and is prone to adverse feedback loops. |
| Keywords: | Vector STAR, financial stress, financial cycle, real economy, regime switching, euro area |
| JEL: | E2 E44 G01 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:epa:cepawp:2014-5&r=fdg |