Inflationary financing of public investment and economic growth

a theoretical model is constructed in order to explain particular historical experiences in which inflation acceleration apparently helped to spur a period of economic growth. Government financed expenditures affect positively the productivity growth in this model so that the distortionary effect of inflation tax is compensated by the productive effect of public expenditures. We show that for some interval of money creation rates there is an equilibrium where money is valued and where steady state physical capital grows with inflation. It is also shown that zero inflation and growth maximization are never the optimal policies.

Welfare and fiscal policy with public goods and infrastructure

We construct and simulate a model to study the welfare and macroeconomic impact of government actions when its productive role is taken into account. The trade-off between public investment and public consumption is also investigated, since public consumption is introduced as a public good that directly affects individuals' well-being. Our results replicate econometric evidence showing that part of the observed slowdown of U.S. productivity growth can be explained by the reduction of investment in infrastructure which also implied a sizable welfare 1085 to the popu1ation. Depending on the methodology used we found a welfare cost ranging from 4.2% to 1.16% of GNP. The impact of fiscal policy can be qualitative and quantitative distinct depending on Whether we assume a higher or smaller output elasticity to infrastructure. If it is high enough, increases in tax rates may stimulate accumulation and production, which is the opposite prediction of standard ncocJassica1 models.

The impact of public capital and public investment on economic growth: an empirical investigation

in this anicle we measure the impact of public sector capital and investment on economic growth. Initially, traditional growth accounting regressions are run for a cross-country data set. A simple endogenous growth model is then constructed in order to take into account the determinants of labor, private capital and public capital. In both cases, public capital is a separate argument of the production function. An additional data-set constructed with quarterly American data was used in the estimations of the growth mode!. The results indicate lhat public capital and public investment play a significant role in determining growth rates and have a significant impact on capital and labor returns. Furthermore, the impact of public investment on productivity growth was found to be positive and always significant for bolh samples. Hence. in a fully optimizing modelo we confmn previous results in the literature that lhe failure of public investment to keep pace with output growlh during the Seventies and Eighties may have played a major role in the slowdown of lhe productivity growth in the period. Anolher main outcome concems the output elasticity wilh respect to public capital. The coefficiem estimates are always positive and significant but magnitudes depend on each of lhe two data set used.

Government policy and private investment in Brazil (1955/82)

The questlon of the crowding-out of private !nvestment by public expenditure, public investment in particular , ln the Brazilian economy has been discussed more in ideological terrns than on empirical grounds. The present paper tries to avoid the limitation of previous studies by estlmatlng an equation for private investment whlch makes it possible to evaluate the effect of economic policies on prlvate investment. The private lnvestment equation was deduced modifylng the optimal flexible accelerator medel (OFAM) incorporating some channels through which public expendlture influences privateinvestment. The OFAM consists in adding adjustment costs to the neoclassical theory of investrnent. The investment fuction deduced is quite general and has the following explanatory variables: relative prices (user cost of capitaljimput prices ratios), real interest rates, real product, public expenditures and lagged private stock of capital. The model was estimated for private manufacturing industry data. The procedure adopted in estimating the model was to begin with a model as general as possible and apply restrictions to the model ' s parameters and test their statistical significance. A complete diagnostic testing was also made in order to test the stability of estirnated equations. This procedure avoids ' the shortcomings of estimating a model with a apriori restrictions on its parameters , which may lead to model misspecification. The main findings of the present study were: the increase in public expenditure, at least in the long run, has in general a positive expectation effect on private investment greater than its crowding-out effect on priva te investment owing to the simultaneous rise in interst rates; a change in economlc policy, such as that one of Geisel administration, may have an important effect on private lnvestment; and reI ative prices are relevant in determining the leveI of desired stock of capital and private investrnent.

Investment in human capital in a macrodynamic framework: redistributive taxation, public debt and welfare

None

Public investment in basic education and economic growth

The main objective of this paper was to visualize the relation between government spending on basic education and the human capital accumulation process, observing the impacts of this spending on individual investments in higher education, and on economic growth. It is used an overlapping-generations model where the government tax the adult generation and spent it in basic education of the next generations. It was demonstrated that the magnitude of the marginal effect of government spending in basic education on growth crucially depends on public budget constrains. The paper explains why some countries with a lot of public investment in basic education growth at low rates. In that sense if a country has only a lot of public investment in basic education without investment in higher education it may growth at low rates because the taxation can cause distortions in the agents incentives to invest in higher education.

Decision making process: a comparison between the public and private sector

The problem of decision making, its mechanisms and consequences is the very core of management, it is virtually impossible to separate the act of manage from this knowledge area. As defined by Herbert Simon – "decision making" as though it were synonymous with "managing". A decision is a selection made by an individual regarding a choice of a conclusion about a situation. This represents a course of behavior pertaining to what must be done or what must not be done. A decision is the point at which plans, policies and objectives are translated into concrete actions. Our behavior during decisive moments is closely linked with our brain dominance profile. Over the years, our decision-making processes develop a consistent pattern, which can be described as a decision-making style. Our style is grounded in our preferences, which arise from our brain dominance characteristics […]. The importance of understanding the impact of our thinking preferences and how to improve the effectiveness as a leader of organizations are the main justifications for this thesis; the main problem addressed is the behavioral profile diversity in a selective Master’s cohort formed by students from several different countries. The research methodology approach has been quantitative, through questionnaire administration using the HBDI (Herrmann Brain Dominance Instrument), a validated framework developed by William "Ned" Herrmann when he was the leader of General Electric's Crotonville facility. This questionnaire has been administered in hundreds of thousands professional, enabling the possibility to establish correlations between a certain group and several historical databases. The selected group of analysis is the first cohort (23 students) from the CIM (Corporate International Master's), a joint program between Georgetown University (USA), ESADE (Spain) and FGV (Brazil). Besides decision preferences, the obtained profile enables the discussion on leadership style, heuristic's pitfalls and a base to compare with future cohorts. The fundamental research question is: how diverse is the dominant decision-making profile for the CIM students?

A note on policy, the composition of public expenditures and economic growth

In this article we study the growth and welfare effects of fiscal and monetary policies in economies where public investment is part of the productive process we present four different models that share the same technology with public infrastructure as a separate argument of the production function. We show that growth is maximized at positive levels of income tax and inflation. However, unless there are no transfers or public goods in the economy, maximization of growth does not imply welfare maximization we show that the optimal tax rate is greater than the rate that maximizes growth and the optimal rate of money creation is below the growth maximizing rate. With public infrastructure in the production function we no longer obtain superneutrality in the Sidrausky model.

Insider trading, investment, and liquidity: a welfare analysis

We compare competitive equilibrium outcomes with and without trading by a privately infonned "monopolistic" insider, in a model with real investment portfolio choices ex ante, and noise trading generated by aggregate uncertainty regarding other agents' intertemporal consumption preferences. The welfare implications of insider trading for the ex ante expected utilities of outsiders are analyzed. The role of interim infonnation revelation due to insider trading, in improving the risk-sharing among outsiders with stochastic liquidity needs, is examined in detaiL

Mobility, targeting and private school vouchers

This paper uses general equilibrium simulations to explore the role ofresidential mobility in shaping the impact of different types of private school voucher policies. In particular, general vouchers available to all residents in the state are compared to vouchers specifically targeted to either underprivileged school districts or underprivileged households. The simulations are derived from a three-community mo deI of low, middle and high income school districts (calibrated to New York data), where each school district is composed of multiple types of neighborhoods that may vary in house quality as well as the leveI of neighborhood extemalities. Households that differ in both their income and in the ability leveI of their children choose between school districts, between neighborhoods within their school district, and between the local public school or a menu of private school altematives.Local public school quality within a district is endogenously determined bya combination of the average peer quality of public school attending children as well as local property and state income tax supported spending. Financial support (above a required state minimum) is set by local majority rule. Finally, there exists the potential for a private school market composed of competitive schools that face production technologies similar to those ofpublic schools but who set tuition and admissions policies to maximize profits. In tbis model, it is demonstrated that school district targeted vouchers are similar in their impact to non-targeted vouchers but vastIy different from vouchers targeted to low income households. Furthermore, strong migration effects are shown to significantly improve the likely equity consequences of voucher programs.

Welfare and growth effects of alternative fiscal rules for infrastructure investment in Brazil

This article studies the interplay between fiscal rules, public investment and growth in Brazil. It is investigated if it would make sense to raise public investment and, if so, under which fiscal rule it is best to do it — whether through tax financing, debt financing, or a reduction of public consumption. We construct and simulate a competitive general equilibrium model, calibrated to Brazilian economy, in which public capital is a component of the production function and public consumption directly affects individuals’ well-being. After assessing the impacts of alternative fiscal rules, the paper concludes that the most desirable financing scheme is the reduction of public consumption, which dominates the others in terms of output and welfare gains. The model replicates the observed growth slowdown of the Brazilian economy when we increase taxes and reduce public capital formation to the levels observed after 1980 and shows that the growth impact of the expansion of tax collection in Brazil was much larger than that of public investment compression.

Public debt and the limits of fiscal policy to increase economic growth

Research that seeks to estimate the effects of fiscal policies on economic growth has ignored the role of public debt in this relationship. This study proposes a theoretical model of endogenous growth, which demonstrates that the level of the public debt-to-gross domestic product (GDP) ratio should negatively impact the effect of fiscal policy on growth. This occurs because government indebtedness extracts part of the savings of the young to pay interest on the debts of the older generation, who are no longer saving. Therefore, the payment of debt interest assumes an allocation exchange role between generations that is similar to a pay-as-you-go pension system, which results in changes in the savings rate of the economy. The major conclusions of the theoretical model were tested using an econometric model to provide evidence for the validity of this conclusion. Our empirical analysis controls for timeinvariant, country-specific heterogeneity in the growth rates. We also address endogeneity issues and allow for heterogeneity across countries in the model parameters and for cross-sectional dependence.

Contracting with repeated moral hazard and private evaluations

A repeated moral hazard setting in which the Principal privately observes the Agent’s output is studied. It is shown that there is no loss from restricting the analysis to contracts in which the Agent is supposed to exert effort every period, receives a constant efficiency wage and no feedback until he is fired. The optimal contract for a finite horizon is characterized, and shown to require burning of resources. These are only burnt after the worst possible realization sequence and the amount is independent of both the length of the horizon and the discount factor (δ). For the infinite horizon case a family of fixed interval review contracts is characterized and shown to achieve first best as δ → 1. The optimal contract when δ << 1 is partially characterized. Incentives are optimally provided with a combination of efficiency wages and the threat of termination, which will exhibit memory over the whole history of realizations. Finally, Tournaments are shown to provide an alternative solution to the problem.