Welfare Implications of Public Education Spending Rules

In this paper, we quantitatively assess the welfare implications of alternative public education spending rules. To this end, we employ a dynamic stochastic general equilibrium model in which human capital externalities and public education expenditures, nanced by distorting taxes, enhance the productivity of private education choices. We allow public education spending, as share of output, to respond to various aggregate indicators in an attempt to minimize the market imperfection due to human capital externalities. We also expose the economy to varying degrees of uncertainty via changes in the variance of total factor productivity shocks. Our results indicate that, in the face of increasing aggregate uncertainty, active policy can signi cantly outperform passive policy (i.e. maintaining a constant public education to output ratio) but only when the policy instrument is successful in smoothing the growth rate of human capital.

Analysing the impact of public capital stock using the NEG wage equation: a panel data approach

This paper examines the relationship between the level of public infrastructure and the level of productivity using panel data for the Spanish provinces over the period 1984-2004, a period which is particularly relevant due to the substantial changes occurring in the Spanish economy at that time. The underlying model used for the data analysis is based on the wage equation, which is one of a handful of simultaneous equations which when satisfied correspond to the short-run equilibrium of New Economic Geography theory. This is estimated using a spatial panel model with fixed time and province effects, so that unmodelled space and time constant sources of heterogeneity are eliminated. The model assumes that productivity depends on the level of educational attainment and the public capital stock endowment of each province. The results show that although changes in productivity are positively associated with changes in public investment within the same province, there is a negative relationship between productivity changes and changes in public investment in other regions.

“Policy Scepticism” and the Impact of London-based Higher Education Institutions (HEIs) on the economy of England: Accounting for Alternative Uses of Public Expenditure

This paper replicates the analysis of Scottish HEIs in Hermannsson et al (2010a) for the case of London-based HEIs’ impact on the English economy in order to provide a self-contained analysis that is readily accessible by those whose primary concern is with the regional impacts of London HEIs. A “policy scepticism” has emerged that challenges the results of conventional regional HEI impact analyses. This denial of the importance of the expenditure impacts of HEIs appears to be based on a belief in either a binding regional resource constraint or a regional public sector budget constraint. In this paper we provide a systematic critique of this policy scepticism. However, while rejecting the extreme form of policy scepticism, we argue that it is crucial to recognise the importance of alternative uses of public expenditure, and show how conventional impact analyses can be augmented to accommodate this. While our results suggest that conventional impact studies overestimate the expenditure impacts of HEIs, they also demonstrate that the policy scepticism that treats these expenditure effects as irrelevant neglects some key aspects of HEIs, in particular their export intensity.

Regional productivity variation and the impact of public capital stock: an analysis with spatial interaction, with reference to Spain

In this paper we examine whether variations in the level of public capital across Spain‟s Provinces affected productivity levels over the period 1996-2005. The analysis is motivated by contemporary urban economics theory, involving a production function for the competitive sector of the economy („industry‟) which includes the level of composite services derived from „service‟ firms under monopolistic competition. The outcome is potentially increasing returns to scale resulting from pecuniary externalities deriving from internal increasing returns in the monopolistic competition sector. We extend the production function by also making (log) labour efficiency a function of (log) total public capital stock and (log) human capital stock, leading to a simple and empirically tractable reduced form linking productivity level to density of employment, human capital and public capital stock. The model is further extended to include technological externalities or spillovers across provinces. Using panel data methodology, we find significant elasticities for total capital stock and for human capital stock, and a significant impact for employment density. The finding that the effect of public capital is significantly different from zero, indicating that it has a direct effect even after controlling for employment density, is contrary to some of the earlier research findings which leave the question of the impact of public capital unresolved.

Cyclical and Welfare Effects of Public Sector Unions in a Real-Business-Cycle Model

Motivated by the highly-unionized public sectors, the high public shares in total employment, and the public sector wage premia observed in Europe, this paper examines the importance of public sector unions for macroeconomic theory. The model generates cyclical behavior in hours and wages that is consistent with data behavior in an economy with highly-unionized public sector, namely Germany during the period 1970-2007. The union model is a signifi cant improvement over a model with exogenous public employment. In addition, endogenously-determined public wage and hours add to the distortionary e ffect of contractionary tax reforms by generating greater tax rate changes, thus producing signi ficantly higher welfare losses.

Determinants of public education expenditure: Evidence from Indian states

Public education expenditure varies significantly across Indian states. Using data on sixteen Indian states from 2001-2010, the paper tries to identify the determinants of per capita education expenditure of state governments in India. The econometric findings indicate that richer states spend more on education compared to the poorer states. A lower share of child population (0-14 years) is found to significantly enhance education expenditure at the state level. We do not find any evidence that political factors such as political ideology of the ruling party and level of corruption affect education expenditure of state governments.