nep-gro New Economics Papers
on Economic Growth
Issue of 2022‒03‒14
eight papers chosen by
Marc Klemp
University of Copenhagen

  1. Reconsidering the interplay between endogenous growth and the Environmental Kuznets Curve. By David DESMARCHELIER
  2. Climate change and economic activity: Evidence from US states By Kamiar Mohaddes; Ryan N. C. Ng; M. Hashem Pesaran; Mehdi Raissi; Jui-Chung Yang
  3. Optimal parental leave subsidization with endogenous fertility and growth By Siew Ling Yew; Shuyun May Li; Solmaz Mosleh
  4. Do corporate tax cuts boost economic growth? By Sebastian Gechert; Philipp Heimberger
  5. Migration, Remittances and Accumulation of Human Capital with Endogenous Debt Constraints By Nicolas Destrée; Karine Gente; Carine Nourry
  6. Growth Factors in Developed Countries: A 1960–2019 Growth Accounting Decomposition By Gilbert Cette; Aurélien Devillard; Vincenzo Spiezia
  7. Classical political economy and secular stagnation By Manuel Cruz Luzuriaga; Daniele Tavani
  8. Government Fragmentation and Economic Growth By Cassidy, Traviss; Velayudhan, Tejaswi

    Abstract: This paper develops a very simple model of endogenous growth à la Lucas (1988) in which a representative household has to choose between environmental preservation and human capital accumulation. After computing analytically all possible trajectories, we point out that one of them depicts an inverted U-shape relationship between human capital (production) and pollution (i.e. an Environmental Kuznets Curve). If the economy follows the EKC trajectory, then a steady state is reached in the long run, indicating the incompatibility between endogenous growth and the EKC. Moreover, this simple framework allows to compute explicitly the initial value of the control variable. It is then proved that the optimal trajectory is the balanced growth path, not the EKC. Finally, we show that endogenous growth is possible, whatever the effect of pollution on the marginal utility of consumption.
    Keywords: Endogenous growth, environmental Kuznets curve, human capital.
    JEL: C61 O44
    Date: 2022
  2. By: Kamiar Mohaddes; Ryan N. C. Ng; M. Hashem Pesaran; Mehdi Raissi; Jui-Chung Yang
    Abstract: We investigate the long-term macroeconomic effects of climate change across 48 U.S. states over the period 1963 2016 using a novel econometric strategy which links deviations of temperature and precipitation (weather) from their long-term moving-average historical norms (climate) to various state-specific economic performance indicators at the aggregate and sectoral levels. We show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labour productivity and employment in the United States. Moreover, in contrast to most cross-country results, our within U.S. estimates tend to be asymmetrical with respect to deviations of climate variables (including precipitation) from their historical norms.
    Keywords: Climate change, economic growth, adaptation, United States
    JEL: C33 O40 O44 O51 Q51 Q54
    Date: 2022–01
  3. By: Siew Ling Yew; Shuyun May Li; Solmaz Mosleh
    Abstract: In a life-cycle dynastic family model with endogenous fertility, labor-leisure, and accumulations of human and physical capital, this study examines the growth and welfare effects of parental leave subsidization when there is human capital externality. Compared with the social optimum, such externality causes higher fertility and less parental time and expenditure inputs in child human capital development, and thus lower growth and welfare in the laissez-faire equilibrium. Parental leave subsidization financed by a lump-sum tax (PLS_LS) promotes economic growth and welfare by improving the quantity-quality trade-off of children. There exists an optimal rate of parental leave subsidy but it cannot achieve the social optimum. Parental leave subsidization financed by a labor income tax (PLS_LI) increases the parental time input in child human capital and economic growth. It may improve welfare despite the distortionary effects of labor income taxes in exacerbating the problems of excessive fertility and under-investment of parental expenditure in child human capital. By calibrating the laissez-faire model economy to the U.S. data, our quantitative results show that for an empirically plausible degree of human capital externalities, the optimal parental leave subsidy under PLS_LI implies a fully-covered leave duration of 8.7 weeks per parent, which increases the annual growth rate of output per worker by 0.3 percentage points and welfare by 0.02 percent from the laissez-faire equilibrium.
    Keywords: Parental leave, Labor income tax, Fertility, Human capital, Welfare, Growth
    JEL: H2 J1 J22 O4
    Date: 2022–01
  4. By: Sebastian Gechert (Macroeconomic Policy Institute (IMK)); Philipp Heimberger (Vienna Institute for International Economic Studies (wiiw))
    Abstract: The empirical literature on the impact of corporate taxes on economic growth reaches ambiguous conclusions: corporate tax cuts increase, reduce, or do not significantly affect growth. We apply meta-regression methods to a novel dataset with 441 estimates from 42 primary studies. There is evidence for publication selectivity in favour of reporting growth-enhancing effects of corporate tax cuts. Correcting for this bias, we cannot reject the hypothesis of a zero effect of corporate taxes on growth. Several factors influence reported estimates, including researcher choices concerning the measurement of growth and corporate taxes, and controlling for other budgetary components.
    Keywords: Corporate income taxes, economic growth, meta-analysis
    JEL: E60 H25 O40
    Date: 2021
  5. By: Nicolas Destrée (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Karine Gente (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Carine Nourry (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper studies the impact of migration and workers' remittances on human capital and economic growth when young individuals face debt constraints to finance education. We consider an overlapping generations model à la de la Croix and Michel (2007). In this no-commitment setting, education is the engine of growth. Individuals may choose to default on their debt and be excluded from the asset market. We show that remittances tend to tighten the borrowing constraints for a given level of interest rate, but may enhance growth at the equilibrium. The model replicates both negative and positive impacts of migration and remittances on economic growth underlined by the empirical literature. We calibrate the model for 30 economies.
    Keywords: Migration,Remittances,Overlapping generations,Human capital,Borrowing constraints,Indeterminacy
    Date: 2021–07
  6. By: Gilbert Cette (Banque de France - Banque de France - Banque de France, NEOMA - Neoma Business School); Aurélien Devillard (NEOMA - Neoma Business School, Centre de recherche de la Banque de France - Banque de France); Vincenzo Spiezia (OECD - The Organisation for Economic Coopération and Development)
    Abstract: Using a new and original database, our paper contributes to the growth accounting literature with three original aspects: First, it covers a long period from the early 60's to 2019, just before the COVID-19 crisis; second, it analyzes a large set of economies (30 plus the Euro Area) at the country level; finally, it singles out the growth contribution of information and communications technologies (ICTs) capital as well as robots. Our findings show that the main drivers of labor productivity growth over the whole 1960–2019 period appear to have been education, total factor productivity (TFP), non-ICT and non-robot capital deepening. The relative contribution of ICT capital is found to be declining from the mid-2000s, although our country-level economy dataset does not make it possible to estimate the TFP contribution of ICTs. The contribution of robots to productivity growth through capital deepening and TFP appears to be significant in Germany and Japan in the sub-period 1975–1995, in France and Italy in 1995–2005, and in several Eastern European countries in 2005–2019. Our findings also confirm the slowdown in TFP in most countries from at least 1995 onwards. This slowdown is mainly accounted for by a decrease in the contributions of non-ICT non-robot capital deepening and TFP.
    Keywords: Growth,Productivity,ICTs,Robots
    Date: 2022
  7. By: Manuel Cruz Luzuriaga (Colorado State University); Daniele Tavani (Colorado State University)
    Abstract: This paper presents a model of secular stagnation, income and wealth distribution, and employment in the Classical Political Economy tradition, that can be contrasted with the accounts by Piketty (2014) and Gordon (2015). In these explanations, an exogenous reduction in the growth rate g --because of declining fertility or the exhaustion of path-breaking scientific discoveries--increases the difference with the rate of return to capital r. The capital-income ratio rises, and if the elasticity of substitution is above one, the wage share falls. Both Piketty and Gordon assume full employment at all times. In our explanation, which does not presuppose full employment, the key tension is between profit-driven capital accumulation and wage-driven labor-augmenting technical change: both are defining for Classical Political Economy, and have been emphasized in recent heterodox macro literature. Labor-crushing institutional or technological shocks initially foster capital accumulation -which is profit-driven-- and increase wealth inequality. However, the effect on long-run growth is negative, because of the reduced incentives by firms to introduce labor-saving innovation, which is wage-driven. The capital/income ratio must rise in order to restore balanced growth in the long run; and the increase in wealth inequality is permanent. The ultimate effect on long-run employment depends on the strength of the response of labor-augmenting technical change vs. the response of real wage growth to labor market institutions: accordingly, long-run employment can either be wage-led or profit-led. We then test the model using time-series data for the US (1990-2019): the test offers support to the main predictions of our model, and to the employment-population ratio being wage-led.
    Keywords: Secular Stagnation, Factor Shares, Wealth Inequality, Employment
    JEL: D31 D33 E11 E24 E25
    Date: 2021
  8. By: Cassidy, Traviss; Velayudhan, Tejaswi
    Abstract: How does the fragmentation of local governments affect economic activity? We examine this question in the context of a major period of decentralization in Indonesia in which the number of local governments increased by 50 percent within a decade. Exploiting idiosyncratic variation in the timing of district splits, we find that fragmentation reduces district GDP in the short run---despite large increases in central transfers. The downsides of fragmentation due to economies of scale and the inexperience of new government personnel outweigh the potential upsides of increased accountability and competition. The GDP decline is larger in ``child'' districts that acquire a new capital and government. Furthermore, splitting districts spend more on administration and show no improvement in the areas of public good provision, red tape, and corruption.
    Keywords: Economic growth, local governments, economies of scale, rent-seeking
    JEL: D73 H77 O43 O47
    Date: 2022–02–18

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