nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒09‒11
seven papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Income inequality, economic growth, and the effect of redistribution By Gründler, Klaus; Scheuermeyer, Philipp
  2. Financial Fragmentation and Economic Growth in Europe By Schnabel, Isabel; Seckinger, Christian
  3. Growth, Secular Stagnation and Wealth Preference By Yoshiyasu Ono
  4. How Important are Debt and Growth Expectations for Interest Rates? By Sohrab Rafiq
  5. Deflation and Public Finances: Evidence from the Historical Records By Nicolas End; Sampawende J.-A. Tapsoba; G. Terrier; Renaud Duplay
  6. Fiscal Deficit and Public Debt in the Western Balkans: 15 Years of Economic Transition By Zsoka Koczan
  7. Government deficits in large open economies: The problem of too little public debt By Buiter, Willem H.; Sibert, Anne C.

  1. By: Gründler, Klaus; Scheuermeyer, Philipp
    Abstract: Evidence from a current panel of harmonized worldwide data highlights a robust negative effect of income inequality on economic growth that we trace back to its transmission channels. Less equal societies tend to have less educated populations and higher fertility rates, but not necessarily lower investment shares. The first two effects are harmful for growth and reinforced by limited credit availability. Higher public spending on education attenuates the negative effects of inequality. In addition to the inequality-growth relationship, we examine the direct influence of effective redistribution. When net inequality is held constant, public redistribution negatively affects economic growth. Redistribution hampers investment and raises fertility rates. Combining the negative direct growth effect and the indirect positive effect operating through lower net inequality, the overall impact of redistribution is insignificant. Whereas this result stems mainly from advanced economies, redistribution is beneficial for growth in low and middle-income countries.
    Keywords: Economic Growth,Redistribution,Inequality,Panel Data
    JEL: O11 O15 O47 H23
    Date: 2015
  2. By: Schnabel, Isabel; Seckinger, Christian
    Abstract: Using industry data from Eurostat and applying the Rajan-Zingales methodology, we investigate the real growth effects of banking sector integration in the European Union. Our sample stretches from 2000 until 2012 and includes the phase of rapid financial integration before the global financial crisis as well as the following phase of financial fragmentation and bank deleveraging. We find evidence that banking sector integration had a more than four times stronger growth effect during the crisis than in normal times. Growth effects are also stronger in times of domestic bank deleveraging. We conclude that concerns of European policy makers about fragmentation in the European banking sector are justified and that future reintegration is an important building block of future growth perspectives in the European Union.
    Keywords: cross-border lending; economic growth; European Union; financial crisis; financial fragmentation; financial integration; foreign banks; Rajan-Zingales methodology
    JEL: F36 G01 G15
    Date: 2015–09
  3. By: Yoshiyasu Ono
    Abstract: In 1960s-1980s Japan enjoyed high economic growth. In the early 1990s, however, the growth rate drastically declined and thereafter Japan has been suffering secular stagnation. This paper proposes a dynamic macroeconomic model that can consistently explain such a drastic change in economic performance. Wealth preference plays an important role. In the early stage consumption grows at the same pace as productivity increases. Once consumption reaches a certain level, however, it deviates from the full-employment level and aggregate demand deficiency appears. After that the economic growth rate asymptotically approaches zero even if productivity keeps on increasing, and secular stagnation arises.
    Date: 2015–09
  4. By: Sohrab Rafiq
    Abstract: This paper uses a dataset on private-sector risk aversion as well as expectations of long-run growth and debt to explain trends in implied forward rates on government bonds in the G-7 countries. The results show, consistent with the literature, that a one-percent rise in the long-run projected debt-to-GDP ratio causes an increase in bond yields of a relatively modest 1-to-6 basis points. Shocks to growth expectations and risk aversion have been comparatively more successful in explaining the behavior of long-term rates. The findings imply that growth policies rather than long-run projections of fiscal outcomes may be more important in helping influence long-term borrowing costs.
    Keywords: Economic growth;Expectations;Public debt;time-variation, debt, interest, interest rates, forward rates, private sector debt, Monetary Policy (Targets, Instruments, and Effects), Open Economy Macroeconomics,
    Date: 2015–05–01
  5. By: Nicolas End; Sampawende J.-A. Tapsoba; G. Terrier; Renaud Duplay
    Abstract: This paper examines the impact of deflation on fiscal aggregates. With deflation relatively rare in modern history, it relies mostly on the historical records, using a dataset panel covering 150 years and 21 advanced economies. Empirical evidence shows that deflation affects public finances mostly through increases in public debt ratios, reflecting a worsening in interest rate–growth differentials. On average, a mild rate of deflation increases public debt ratios by almost 2 percent of GDP a year, this impact being larger during recessionary deflations. Using a simulation model that accounts for composition effects and price expectations, we also find that, for European countries, a 2 percentage point deflationary shock in both 2015 and 2016 would lead to a deterioration in the primary balance of as much as 1 percent of GDP by 2019.
    Keywords: Deflation;Public finance;Fiscal policy;Fiscal analysis;Developed countries;Panel analysis;Fiscal policy, Deflation, Low inflation, Inflation, Public finances
    Date: 2015–07–28
  6. By: Zsoka Koczan
    Abstract: In this paper we analyze how Western Balkans public finances adapted to the boom-bust cycle. Large capital inflows into emerging European economies during the mid-2000s resulted in rapid economic growth and convergence to EU income levels. This also resulted in improved fiscal positions of most countries, on the back of strong revenue performance. Yet, since the onset of the global economic crisis, many countries have struggled to adjust to the new situation of lower external financing and lower growth.
    Keywords: Albania;Bosnia and Herzegovina;Croatia;Macedonia, former Yugoslav Republic of;Montenegro;Serbia;Kosovo;Budget deficits;Albania;Economic growth;Government expenditures;Public debt;Fiscal policy;Transition economies;Cross country analysis;Debt;Western Balkans, fiscal policies, deficit, transition, tax, revenues, expenditures, revenue, General, General, Performance and Prospects,
    Date: 2015–07–24
  7. By: Buiter, Willem H.; Sibert, Anne C.
    Abstract: Large and growing levels of public debt in the United States, United Kingdom, Japan and the Euro Area raise new interest in the cross-country effects of a large open economy's deficits. The authors consider a dynamic optimising model with costly tax collection and exogenously given public spending and initial debt. They ask whether the externalities associated with an individual country's deficits are positive or negative. They characterise the path of taxes in the Nash equilibrium where policy makers act nationalistically and compare this outcome to the global optimal outcome.
    Keywords: fiscal policy,international policy coordination,optimal taxation
    JEL: E62 F42 H21
    Date: 2015

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