Essays on investment, growth and income distribution

In this dissertation, I examine both theoretically and empirically the relationship between stock prices and income distribution using an endogenous growth model with social status impatience.^ The theoretical part looks into how status impatience and current economic status jointly determine time preference, savings, future economic status, stock prices, growth and wealth distribution in the steady state. This work builds on Burgstaller and Karayalcin (1996).^ More specifically, I look at (i) the effects of the distribution of status impatience levels on the distribution of steady state assets, incomes and consumption and (ii) the effects of changes in relative levels of status impatience on stock prices. Therefore, from (i) and (ii), I derive the correlation between stock prices, incomes and asset distribution. Also, the analysis of the stack market is undertaken in the presence of adjustment costs to investments.^ The empirical chapter looks at (i) the correlation between income inequality and long run economic growth on the one hand and (ii) the correlation between stock market prices and income inequality on the other. The role of stock prices and social status is examined to better understand the forces that enable a country to grow overtime and to determine why output per capita varies across countries. The data are from Summers and Heston (1988), Barro and Wolf (1989), Alesina and Rodrik (1994), Global financial Database (1997) and the World Bank. Data for social status are collected through a primary sample survey on the internet. Twenty-five developed and developing countries are included in the sample.^ The model developed in this study was specified as a system of simultaneous equations, in which per capita growth rate and income inequality were endogenous variables. Additionally, stock price index and social status measures were also incorporated. The results indicate that income inequality is inversely related to economic growth. In addition, increase in income inequality arising from higher stock prices constrains growth. Moreover, where social status is determined by income levels, it influences long run growth. Therefore, these results support findings of Persson and Tabellini (1994) and Alesina and Rodrik (1994). ^

Three essays on the economics of defense contracting, output and income inequality

This dissertation analyzes both the economics of the defense contracting process and the impact of total dollar obligations on the economies of U.S. states. Using various econometric techniques, I will estimate relationships across individual contracts, state level output, and income inequality. I will achieve this primarily through the use of a dataset on individual contract obligations. ^ The first essay will catalog the distribution of contracts and isolate aspects of the process that contribute to contract dollar obligations. Accordingly, this study describes several characteristics about individual defense contracts, from 1966-2006: (i) the distribution of contract dollar obligations is extremely rightward skewed, (ii) contracts are unevenly distributed in a geographic sense across the United States, (iii) increased duration of a contract by 10 percent is associated with an increase in costs by 4 percent, (iv) competition does not seem to affect dollar obligations in a substantial way, (v) contract pre-payment financing increases the obligation of contracts from anywhere from 62 to 380 percent over non-financed contracts. ^ The second essay will turn to an aggregate focus, and look the impact of defense spending on state economic output. The analysis in chapter two attempts to estimate the state level fiscal multiplier, deploying Difference-in-Differences estimation as an attempt to filter out potential endogeneity bias. Interstate variation in procurement spending facilitates utilization of a natural experiment scenario, focusing on the spike in relative spending in 1982. The state level relative multiplier estimate here is 1.19, and captures the short run, impact effect of the 1982 spending spike. ^ Finally I will look at the relationship between defense contracting and income inequality. Military spending has typically been observed to have a negative relationship with income inequality. The third chapter examines the existence of this relationship, combining data on defense procurement with data on income inequality at the state level, in a longitudinal analysis across the United States. While the estimates do not suggest a significant relationship exists for the income share of the top ten percent of households, there is a significant positive relationship for the income share of top one percent households for an increase in defense procurement.^

Three Essays on the Economics of Defense Contracting, Output and Income Inequality

This dissertation analyzes both the economics of the defense contracting process and the impact of total dollar obligations on the economies of U.S. states. Using various econometric techniques, I will estimate relationships across individual contracts, state level output, and income inequality. I will achieve this primarily through the use of a dataset on individual contract obligations. The first essay will catalog the distribution of contracts and isolate aspects of the process that contribute to contract dollar obligations. Accordingly, this study describes several characteristics about individual defense contracts, from 1966-2006: (i) the distribution of contract dollar obligations is extremely rightward skewed, (ii) contracts are unevenly distributed in a geographic sense across the United States, (iii) increased duration of a contract by 10 percent is associated with an increase in costs by 4 percent, (iv) competition does not seem to affect dollar obligations in a substantial way, (v) contract pre-payment financing increases the obligation of contracts from anywhere from 62 to 380 percent over non-financed contracts. The second essay will turn to an aggregate focus, and look the impact of defense spending on state economic output. The analysis in chapter two attempts to estimate the state level fiscal multiplier, deploying Difference-in-Differences estimation as an attempt to filter out potential endogeneity bias. Interstate variation in procurement spending facilitates utilization of a natural experiment scenario, focusing on the spike in relative spending in 1982. The state level relative multiplier estimate here is 1.19, and captures the short run, impact effect of the 1982 spending spike. Finally I will look at the relationship between defense contracting and income inequality. Military spending has typically been observed to have a negative relationship with income inequality. The third chapter examines the existence of this relationship, combining data on defense procurement with data on income inequality at the state level, in a longitudinal analysis across the United States. While the estimates do not suggest a significant relationship exists for the income share of the top ten percent of households, there is a significant positive relationship for the income share of top one percent households for an increase in defense procurement.