nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒08‒13
seven papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Debt Policy Rules in an Open Economy By Keiichi Morimoto; Takeo Hori; Noritaka Maebayashi; Koichi Futagami
  2. Pensions, Education, and Growth: A Positive Analysis By Tetsuo Ono; Yuki Uchida
  3. On growth-optimal tax rates and the issue of wealth inequalities By Jean-Philippe Bouchaud
  4. The relative effectiveness of Monetary and Fiscal Policies on growth: what does long-run SVAR model tell us? By Şen, Hüseyin; Kaya, Ayşe
  5. A contribution to the Reinhart and Rogoff debate: not 90 percent but maybe 30 percent By Sokbae Lee*; Hyunmin Park; Myung Hwan Seo; Youngki Shin
  6. Technological Progress, Investment Frictions and Business Cycle: New Insights from a Neoclassical Growth Model By Michael Donadelli; Vahid Mojtahed; Antonio Paradiso
  7. Innovation, industrial dynamics and economic growth By Stadler, Manfred

  1. By: Keiichi Morimoto (Department of Economics, Meisei University); Takeo Hori (College of Economics, Aoyama Gakuin University); Noritaka Maebayashi (Faculty of Economics and Business Administration, The University of Kitakyushu); Koichi Futagami (Graduate School of Economics, Osaka University)
    Abstract: In a small open economy model of endogenous growth with public capital accu- mulation, we examine the effects of a debt policy rule under which the government must reduce its debt-GDP ratio if it exceeds the criterion level. To sustain public debt at a finite level, the government should adjust public spending rather than the income tax rate. The long run debt-GDP ratio should be kept sufficiently low to avoid equilibrium indeterminacy. Under sustainability and determinacy, a tighter (looser) debt rule brings welfare gains when the world interest rate is relatively high (low).
    Keywords: Fiscal policy, Public debt, Welfare, Small open economy, Indeterminacy, Limit cycles
    JEL: E62 H54 H63
    Date: 2013–05
  2. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Graduate School of Economics, Osaka University)
    Abstract: This study presents an overlapping generations model to capture the nature of the competition between generations regarding two redistribution policies, public education and public pensions. From a political economy viewpoint, we investigate the effects of population aging on these policies and economic growth. We show that greater longevity results in a higher pension-to-GDP ratio. However, an increase in longevity produces an initial increase followed by a decrease in the public education- to-GDP ratio. This, in turn, results in a hump-shaped pattern of the growth rate.
    Keywords: economic growth; population aging; public education; public pen-sions
    JEL: D78 E24 H55
    Date: 2014–12
  3. By: Jean-Philippe Bouchaud (Capital Fund Management and Ecole Polytechnique)
    Abstract: We introduce a highly stylized model of the economy, with a public and private sector coupled through a wealth tax and a redistribution policy. The model can be fully solved analytically, and allows one to address the question of optimal taxation and of wealth inequalities. We find that according to the assumption made on the relative performance of public and private sectors, three situations are possible. Not surprisingly, the optimal wealth tax rate is either 0% for a deeply dysfunctional government and/or highly productive private sector, or 100 % for a highly efficient public sector and/or debilitated/risk averse private investors. If the gap between the public/private performance is moderate, there is an optimal positive wealth tax rate maximizing economic growth, even -- counter-intuitively -- when the private sector generates more growth. The compromise between profitable private investments and taxation however leads to a residual level of inequalities. The mechanism leading to an optimal growth rate is related the well-known explore/exploit trade-off.
    Date: 2015–08
  4. By: Şen, Hüseyin; Kaya, Ayşe
    Abstract: This paper studies empirically the relative effectiveness of monetary and fiscal policies on growth. Unlike many previous papers which have focused, to a large extent, on the effect of monetary or fiscal policies separately, this paper considers the comparative efficacy of the two policies on growth by applying the Structural Vector Autoregression (SVAR) model to the quarterly data for Turkey over the period 2001:Q1-2014:Q2. The empirical findings of this paper show that both monetary and fiscal policies do have significant effects on growth. However, monetary policy is more effective than fiscal policy in stimulating growth. More specifically, interest rate ―a monetary policy variable― is the most potent instrument in affecting growth. Then budget deficit ―a fiscal policy variable― becomes the second important variable after interest rate. These findings suggest that although the relative effectiveness in boosting growth is different, both policies significantly affect growth, suggesting that they should be used jointly but in an efficient manner.
    Keywords: Monetary Policy, Fiscal Policy, Growth, Macroeconomic Policy Management, SVAR, Turkey.
    JEL: E52 E58 E62 E63
    Date: 2015–07–31
  5. By: Sokbae Lee* (Institute for Fiscal Studies); Hyunmin Park (Institute for Fiscal Studies); Myung Hwan Seo (Institute for Fiscal Studies); Youngki Shin (Institute for Fiscal Studies)
    Abstract: Using the Reinhart-Rogoff dataset, we find a debt threshold not around 90 percent but around 30 percent above which the median real GDP growth falls abruptly. Our work is the first to formally test for threshold effects in the relationship between public debt and median real GDP growth. The null hypothesis of no threshold effect is rejected at the 5 percent signicance level for most cases. While we find no evidence of a threshold around 90 percent, our findings suggest that the debt threshold for economic growth may exist around a relatively small debt-to-GDP ratio of 30 percent. Empirical results are more robust with the postwar sample than the long sample that goes before World War II.
    Date: 2014–09
  6. By: Michael Donadelli; Vahid Mojtahed; Antonio Paradiso
    Abstract: This paper examines whether there is direct link between investment frictions and technological progress. An augmented version of a standard stochastic Solow model is presented. In this novel version the TFP is a function of a set of “ad hoc” variables in deviation from their equilibrium trend: (i) relative price of investment goods with respect to consumption goods (i.e. investment frictions); (ii) human capital index and (iii) trade openness. Empirical results show that investment frictions have an important role in influencing productivity growth. This finding may help in solving an important puzzle raised by the recent business cycle accounting literature, which points out that frictions have a marginal role in driving business cycles. The continuous fluctuations around the long-run trend of exogenous variables entering as driving forces in the technological progress implies that productivity shocks are state dependent. In other words, the true effect on the stock of knowledge and output depends on the exogenous variables’ cyclical phase. This provides novel, realistic and country-specific policy implications.
    Keywords: technological progress, macroeconomic fluctuations, investment frictions, trade openness, education
    JEL: E32 C32 O47
    Date: 2015
  7. By: Stadler, Manfred
    Abstract: We present a class of dynamic general-equilibrium models of education, innovation and technology transfer to explain the evolution of industries and aggregate growth in closed and open economies. Firms employ educated workers in order to develop higher-quality products. The realization of quality innovations becomes more difficult as the quality level increases but this deterioration of technological opportunities is compensated by an improvement of the researchers' capabilities. Innovation and human-capital accumulation appear as in-line engines of scale-invariant endogenous growth. Industries evolve according to stochastic processes of innovation, imitation and technology adaption in the global economy.
    Keywords: education,innovation,industrial dynamics,technology transfer,international trade,economic growth
    JEL: F43 O31 O33 O34
    Date: 2015

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