On the relationship between defense and non-defense spending in the U.S. during the world wars
|
|
- Rosa Turner
- 2 years ago
- Views:
Transcription
1 Economics Letters 95 (2007) On the relationship between defense and non-defense spending in the U.S. during the world wars Roel M.W.J. Beetsma a,, Alex Cukierman b, Massimo Giuliodori c a University of Amsterdam, Tinbergen Institute, CEPR and CESifo, The Netherlands b Tel Aviv University and CEPR, Israel c University of Amsterdam, The Netherlands Received 31 July 2006; received in revised form 6 November 2006; accepted 29 November 2006 Available online 23 February 2007 Abstract We show that U.S. defense and non-defense expenditures were positively correlated during World War I and negatively during World War II. We rationalize this pattern in a model with falling spending complementarities and rising marginal tax distortions as government grows Elsevier B.V. All rights reserved. Keywords: Defense expenditures; Non-defense expenditures; World Wars; Correlation; Taxation JEL classification: H56; N42; E62 1. Introduction We show that defense and non-defense expenditures in the U.S. were positively correlated during World War I (WW-I) and negatively correlated during World War II (WW-II). This letter seeks to rationalize this striking pattern of correlations using a model with a welfare maximizing social planner This letter is part of a larger project. We thank seminar participants at the University of Amsterdam, Tel Aviv University, Princeton University, Rutgers University, the University of Nottingham, the Kiel Institute of World Economics and UC Santa Cruz for their helpful comments on presentations in earlier stages of the project. Corresponding author. Mailing address: Department of Economics, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands. Tel.: ; fax: address: (R.M.W.J. Beetsma) /$ - see front matter 2006 Elsevier B.V. All rights reserved. doi: /j.econlet
2 416 R.M.W.J. Beetsma et al. / Economics Letters 95 (2007) Fig. 1. a: Defense (d) and non-defense (g) government purchases during and around World War I. b: Defense (d) and non-defense (g) government purchases during and around World War II. in which defense spending and civilian public spending are positively correlated when the size of the government is small and negatively correlated for large government. The following basic assumptions suffice to reach this conclusion. First, when a war (threat) arises, the marginal utility of defense expenditures goes up. Second, at low levels of government, defense and civilian expenditures complement each other in the sense that the marginal utility of each type of expenditure goes up when the quantity of the other rises. The idea is that the effective control of a large war machine by civilian authorities requires a certain minimal level for the size of the civilian public sector (for example, administrative bodies and investment in physical infrastructure). By contrast, at high levels of government, the marginal utility of each type of expenditures is independent of the quantity of the other type. 1 Finally, the rate at which marginal tax distortions increase with taxes is positive only above a certain threshold size of government. Below this threshold the marginal tax distortion is constant. 1 Further discussion of this assumption in the historical context of the world wars appears in the Conclusion.
3 R.M.W.J. Beetsma et al. / Economics Letters 95 (2007) Defense and civilian spending during the wars Data are taken from the U.S. Census Bureau (2006) and from the National Income and Product Accounts (NIPA) available from the Bureau of Economic Analysis (2006). In addition, we use GDP data from Johnston and Williamson (2006) for the pre-1929 period and data on interest payments from Bohn (2005). Fig. 1a depicts defense expenditures as a share of GDP (d) jointly with federal non-defense expenditures excluding veteran benefits and interest payments as a share of GDP (g) over the period Both series make use of data from the U.S. Census Bureau (2006). The netting out of interest payments and veteran expenditures from non-defense spending is motivated by the question we seek to answer, which concerns the effect of changes in defense spending on the net relative size of civilian government. Since both veteran benefits and interest on the public debt are, for the most part, lagged consequences of wars, we subtract them from non-defense expenditures in order to isolate the effect of changes in defense spending on the net size of the non-defense (non-transfer) governmental sector. 2 We observe also that in the period before the Great Depression, the bulk of transfers was to war veterans, so that the series g is a good approximation of non-defense government purchases. Clearly, the two variables move up and down together during and around WW-I ( ). Fig. 1b depicts government defense purchases as a share of GDP (d) jointly with federal government non-defense purchases as a share of GDP (g) over the period These series make use of the NIPA data. The series g thus excludes all transfer payments. We see that the series move in opposite directions during and around the second World War. In fact, the correlation coefficient between the series g and d drops from 0.92 over the earlier period to 0.76 over the later period. These correlations differ from each other at a 1% level of statistical significance. 3 As a final input for our formal argument, we notice that, using the data from the U.S. Census Bureau (2006), federal government spending as a share of GDP has risen from 2.1% in 1915 to 9.8% of GDP in That is, from the eve of WW-I to the eve of WW-II, the relative size of government increased almost five-fold. 3. The model We use a representative agent model that abstracts from distributional considerations of the type surveyed in Persson and Tabellini (2000) and Drazen (2000). In the context of allocating resources between defense and civilian public goods in the face of a national emergency such a simplification may not be unreasonable. One reason is that, in the presence of a common external danger, internal differences are largely put aside. The advantage of the unitary agent framework is that it makes it possible to focus clearly on a political decision making mechanism that is likely to be present in more realistic but more complex frameworks. Let d be the fraction of per capita defense spending per unit of per capita income and let g be the fraction of per capita civilian public expenditures per unit of per capita income. Utility of the representative individual is given by u (ad, g ) where a is a shock affecting the marginal utility from 2 For interest on the public debt, this is the case mainly prior to In Beetsma et al. (2005) we regress changes in g on changes in d over the first three decades of the 20th century as well as over the remaining decades, while controlling for the phase of the cycle. Those regressions confirm that the relation between d and g is positive and significant over the first subperiod, but negative and significant over the second subperiod.
4 418 R.M.W.J. Beetsma et al. / Economics Letters 95 (2007) defense spending (a war or the threat of a war would classify as an increase in a). The utility function may be rewritten as 4 uðad; gþ: ð1þ We assume that u d N0, u g N0, u dd b0, u gg b0 and that u gd 0. Here, subscript d (g) denotes the partial derivative with respect to the first (second) argument. We ignore transfers. Hence, civilian spending is the non-defense part of what the standard macroeconomics textbook calls government purchases. Defense spending and civilian public spending are financed by either current or future taxes (via debt). Let t be the fraction of per capita current and future taxes (in present value terms) required to finance total current defense and civilian expenditures per unit of (current) per capita income. Government's budget constraint implies g þ d ¼ t: ð2þ Taxes lead to losses that are described by a distortion function cðtþ; ð3þ with a positive and (weakly) increasing marginal distortion rate as in Barro (1979); i.e, c N0 and c 0. 5 The government's objective is to maximize u (ad, g) c (t) subject to the budget constraint (2). Substituting constraint (2) into (1), the government's problem is to choose d and t so as to maximize: V ðd; tþuuðad; t dþ cðtþ: The first-order conditions for an internal maximum are: V d ðd; tþuau d ðad; t dþ u g ðad; t dþ ¼0; ð4þ V t ðd; tþuu t ðad; t dþ cvðtþ ¼0: ð5þ The second-order conditions for an internal maximum are V dd ðd; tþua 2 u dd 2au dg þ u gg b0; WuV dd V tt ðv dt Þ 2 N0; where V tt (d, t)=u gg c and V dt (d, t)=au dg u gg. We now formulate the assumptions presented at the outset more precisely. 4 By definition, per capita magnitudes are obtained by dividing the total values of defense and civilian expenditures by population, and per capita income is, similarly, obtained by dividing total income by population. Since it appears in both the numerators and the denominators of all those expressions, population drops out so that d=d and g=g. 5 However, here the increasing marginal distortion rate is assumed to apply to the sum of current taxes and the present value of future taxes required to finance current government expenditures, rather than to only the current tax component.
5 R.M.W.J. Beetsma et al. / Economics Letters 95 (2007) Assumption 1. The marginal utility of defense is positively affected by the shock a or, more formally, dðau d Þ ¼ u d þ adu dd N0: ð6þ da Assumption 2. There are sufficiently strong positive complementarities in utility between defense and civilian expenditures at relatively low government (g + d is small), and no utility interactions between them at relatively large government (g + d is large). Formally, u gd N 0 at small government; u gd ¼ 0 at large government: ð7þ Assumption 3. Below a certain positive threshold, the marginal tax distortion is constant. Formally, cw ¼ 0: Next, we evaluate the effect of the war shock on d and g by performing a comparative statics experiment with respect to a and using the three assumptions above. Totally differentiating the first-order conditions with respect to a, we obtain after some algebra dd da ¼ 1 W ½du gdðau gd cwþþðcw u gg Þðu d þ adu dd ÞŠ; dg da ¼ 1 W ½du gdðcw a 2 u dd Þþðau gd cwþðu d þ adu dd ÞŠ: ð8þ ð9þ When government is large, the second part of Assumption 2 implies that these equations reduce to dd da ¼ 1 W ðcw u ggþðu d þ adu dd ÞN0; dg da ¼ 1 W cwðu d þ adu dd Þb0; ð10þ ð11þ where the inequalities follow from Assumption 1 and the fact that WN0 by the second-order condition. Consequently, at relatively large levels of government, defense and civilian expenditures are negatively correlated, as was the case during WW-II when government was relatively large. When government is sufficiently small, Eqs. (8) and (9) reduce to dd da ¼ 1 W ½adu2 gd u ggðu d þ adu dd ÞŠN0; dg da ¼ 1 W ½ a2 u dd du gd þ au gd ðu d þ adu dd ÞŠN0:
6 420 R.M.W.J. Beetsma et al. / Economics Letters 95 (2007) The inequalities are implied by the three Assumptions, the fact that WN0, and the fact that the marginal utilities of civilian and defense expenditures are both decreasing in the shares of those variables. Those arguments provide a proof to the following summary proposition. Proposition 1. Given 1 3 above, when the size of government is sufficiently small, both defense spending and civilian public spending are increasing in the war shock, a, and are, consequently, positively related. When the size of government is sufficiently large, civilian public spending is decreasing in the war shock, a, while defense spending is still increasing in it, implying that civilian public spending and defense spending are negatively related. 4. Conclusion and discussion This letter documents a striking change in the pattern of correlations between defense and nondefense U.S. government spending between WW-I and WW-II and attempts to provide conceptual underpinnings for it. The explanation relies on the view that, during national emergencies, internal differences in interests are largely put aside and political authorities allocate outlays between civilian and defense expenditures so as to maximize the welfare of a representative individual. Our argument relies on a falling complementarity between the shares of the two types of spending when their sum rises, combined with increasing tax distortions when the relative size of government increases. While the second hypothesis is well accepted in the political economy and macro literature, the first has not (to our knowledge) previously appeared. It therefore deserves some discussion. Economic historians like Higgs (in press) report that, during both world wars, the Federal government got involved in the operation of civilian activities that in peace time are normally left to the private sector. A notable example during WW-I is the Emergency Fleet Corporation that started operations in 1917 and was heavily involved in the acquisition, construction and operation of merchant vessels. During both world wars draft boards were operated by civilians. Higgs and others report that, in addition to its increase in the share of the Federal budget induced by the involvement in the war, government's role in the economy grew enormously during the wars through a maze of regulations, direct instructions issued to private firms regarding what to produce, requisition of some industries and price controls. Those activities required expansion of both defense and non-defense budgets. Due to the legacy of the Great Depression (and of WW-I before it) the larger civilian component of the budget already had some of those in place at the eve of WW-II but not at the eve of WW-I. As a consequence, the creation and operation of a war command economy required an expansion of the relative share of civilian Federal outlays along with defense outlays during WW-I but less so, during WW-II. In addition, since total government at the eve of WW-I was small the impact of a simultaneous increase in the shares of both civilian and defense outlays on the marginal tax distortion was small. By contrast, during WW-II the dominant influence on civilian expenditures was the high and rapidly rising marginal tax distortion which induced government to reduce the share of civilian expenditures in parallel with the increasing share of defense. We expect our argument to carry over to situations in which individuals have different incomes and additional objectives (in particular, about redistribution) as long as the common objective assumed here enters with a sufficiently large weight in the preference functions of individuals.
7 R.M.W.J. Beetsma et al. / Economics Letters 95 (2007) References Barro, R., On the determination of public debt. Journal of Political Economy 87, Beetsma, R.M.W.J., Cukierman, A., Giuliodori, M., Wars, Redistribution and Civilian Federal Expenditures in the U.S. Over the Twentieth Century, CEPR Discussion Paper, No Bohn, H., The Sustainability of Fiscal Policy in the United States, CESifo Working Paper, No.1446, Munich. Bureau of Economic Analysis, Drazen, A., Political Economy in Macroeconomics. Princeton University Press, Princeton NJ. Higgs, R., The World Wars. In: Fishback, P. (ed.), Government and the American Economy A New History, University of Chicago Press, Chicago, IL. Johnston, L.D., Williamson, S.H., The Annual Real and Nominal GDP for the United States, 1790 Present, Economic History Services. URL: Persson, T., Tabellini, G., Political Economics: Explaining Economic Policy. The MIT Press, Cambridge, MA. U.S. Census Bureau.
Inflation. Chapter 8. 8.1 Money Supply and Demand
Chapter 8 Inflation This chapter examines the causes and consequences of inflation. Sections 8.1 and 8.2 relate inflation to money supply and demand. Although the presentation differs somewhat from that
The Multiplier Effect of Fiscal Policy
We analyze the multiplier effect of fiscal policy changes in government expenditure and taxation. The key result is that an increase in the government budget deficit causes a proportional increase in consumption.
On the Dual Effect of Bankruptcy
On the Dual Effect of Bankruptcy Daiki Asanuma Abstract This paper examines whether the survival of low-productivity firms in Japan has prevented economic recovery since the bursting of the financial bubble
. In this case the leakage effect of tax increases is mitigated because some of the reduction in disposable income would have otherwise been saved.
Chapter 4 Review Questions. Explain how an increase in government spending and an equal increase in lump sum taxes can generate an increase in equilibrium output. Under what conditions will a balanced
Schooling, Political Participation, and the Economy. (Online Supplementary Appendix: Not for Publication)
Schooling, Political Participation, and the Economy Online Supplementary Appendix: Not for Publication) Filipe R. Campante Davin Chor July 200 Abstract In this online appendix, we present the proofs for
Final. 1. (2 pts) What is the expected effect on the real demand for money of an increase in the nominal interest rate? How to explain this effect?
Name: Number: Nova School of Business and Economics Macroeconomics, 1103-1st Semester 2013-2014 Prof. André C. Silva TAs: João Vaz, Paulo Fagandini, and Pedro Freitas Final Maximum points: 20. Time: 2h.
Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2009 and 2010 estimates)
Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2009 and 2010 estimates) Emmanuel Saez March 2, 2012 What s new for recent years? Great Recession 2007-2009 During the
crowding out Crowding out at full employment
C000452 Crowding out refers to all the things which can go wrong when debtfinanced fiscal policy is used to affect output. While the initial focus was on the slope of the LM curve, now refers to a multiplicity
= C + I + G + NX ECON 302. Lecture 4: Aggregate Expenditures/Keynesian Model: Equilibrium in the Goods Market/Loanable Funds Market
Intermediate Macroeconomics Lecture 4: Introduction to the Goods Market Review of the Aggregate Expenditures model and the Keynesian Cross ECON 302 Professor Yamin Ahmad Components of Aggregate Demand
MS #5457 TAXES, ORGANIZATIONAL FORM, AND THE DEAD WEIGHT LOSS OF THE CORPORATE INCOME TAX. Austan Goolsbee University of Chicago
MS #5457 TAXES, ORGANIZATIONAL FORM, AND THE DEAD WEIGHT LOSS OF THE CORPORATE INCOME TAX Austan Goolsbee University of Chicago ABSTRACT Corporate taxation can play an important role in a firm's choice
Fiscal Decentralization and Economic Growth in the United States*
Journal of Urban Economics 45, 228 239 (1999) Article ID juec.1998.2095, available online at http://www.idealibrary.com on Fiscal Decentralization and Economic Growth in the United States* Danyang Xie
The long-term projections of federal revenues and
APPENDIX B Changes in s Long-Term Projections Since July 214 The long-term projections of federal revenues and outlays presented in this report are generally similar to the ones that the Congressional
Money and Public Finance
Money and Public Finance By Mr. Letlet August 1 In this anxious market environment, people lose their rationality with some even spreading false information to create trading opportunities. The tales about
Comments on \Do We Really Know that Oil Caused the Great Stag ation? A Monetary Alternative", by Robert Barsky and Lutz Kilian
Comments on \Do We Really Know that Oil Caused the Great Stag ation? A Monetary Alternative", by Robert Barsky and Lutz Kilian Olivier Blanchard July 2001 Revisionist history is always fun. But it is not
Optimal Age Specific Income Taxation
Optimal Age Specific Income Taxation Jean-Marie Lozachmeur 1 October, 2005 1 GREMAQ, University of Toulouse. Mailing: Gremaq, 21 Allée de Brienne F- 31000 Toulouse. E-mail: jean-marie.lozachmeur@univ-tlse1.fr.
The Greater the Differences, the Greater the Gains?
The Greater the Differences, the Greater the Gains? Wilfred J. Ethier Department of Economics University of Pennsylvania First version: 30 November 2007 This printing: 21 April 2009 The Greater the Differences,
Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2012 preliminary estimates)
Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2012 preliminary estimates) Emmanuel Saez, UC Berkeley September 3, 2013 What s new for recent years? 2009-2012: Uneven
The Real Business Cycle model
The Real Business Cycle model Spring 2013 1 Historical introduction Modern business cycle theory really got started with Great Depression Keynes: The General Theory of Employment, Interest and Money Keynesian
Financial predictors of real activity and the financial accelerator B
Economics Letters 82 (2004) 167 172 www.elsevier.com/locate/econbase Financial predictors of real activity and the financial accelerator B Ashoka Mody a,1, Mark P. Taylor b,c, * a Research Department,
Average Debt and Equity Returns: Puzzling?
Federal Reserve Bank of Minneapolis Research Department Staff Report 313 January 2003 Average Debt and Equity Returns: Puzzling? Ellen R. McGrattan Federal Reserve Bank of Minneapolis, University of Minnesota,
School of Economics and Management
School of Economics and Management TECHNICAL UNIVERSITY OF LISBON Department of Economics Carlos Pestana Barros & Nicolas Peypoch António Afonso & João Tovar Jalles A Comparative The cyclicality Analysis
FEDERAL AID AND STATE ECONOMIES: EVALUATING THE OBAMA STIMULUS. Gerald Carlino Federal Reserve Bank, Philadelphia
FEDERAL AID AND STATE ECONOMIES: EVALUATING THE OBAMA STIMULUS Gerald Carlino Federal Reserve Bank, Philadelphia Robert Inman Wharton School, University of Pennsylvania OVERVIEW I. U.S. States as Agents
Moral Hazard. Itay Goldstein. Wharton School, University of Pennsylvania
Moral Hazard Itay Goldstein Wharton School, University of Pennsylvania 1 Principal-Agent Problem Basic problem in corporate finance: separation of ownership and control: o The owners of the firm are typically
The Elasticity of Taxable Income: A Non-Technical Summary
The Elasticity of Taxable Income: A Non-Technical Summary John Creedy The University of Melbourne Abstract This paper provides a non-technical summary of the concept of the elasticity of taxable income,
Lecture 2 Dynamic Equilibrium Models : Finite Periods
Lecture 2 Dynamic Equilibrium Models : Finite Periods 1. Introduction In macroeconomics, we study the behavior of economy-wide aggregates e.g. GDP, savings, investment, employment and so on - and their
6. Budget Deficits and Fiscal Policy
Prof. Dr. Thomas Steger Advanced Macroeconomics II Lecture SS 2012 6. Budget Deficits and Fiscal Policy Introduction Ricardian equivalence Distorting taxes Debt crises Introduction (1) Ricardian equivalence
A Model of the Current Account
A Model of the Current Account Costas Arkolakis teaching assistant: Yijia Lu Economics 407, Yale January 2011 Model Assumptions 2 periods. A small open economy Consumers: Representative consumer Period
Market Power and Efficiency in Card Payment Systems: A Comment on Rochet and Tirole
Market Power and Efficiency in Card Payment Systems: A Comment on Rochet and Tirole Luís M. B. Cabral New York University and CEPR November 2005 1 Introduction Beginning with their seminal 2002 paper,
Fiscal Multipliers. Robert J. Barro Harvard University
Fiscal Multipliers Robert J. Barro Harvard University April 2013 Samuelson Prediction Predicted major negative effect of U.S. post- WWII demobilization on GDP and employment, based on large spending multiplier.
Prices versus Exams as Strategic Instruments for Competing Universities
Prices versus Exams as Strategic Instruments for Competing Universities Elena Del Rey and Laura Romero October 004 Abstract In this paper we investigate the optimal choice of prices and/or exams by universities
Macroeconomic Effects of Financial Shocks Online Appendix
Macroeconomic Effects of Financial Shocks Online Appendix By Urban Jermann and Vincenzo Quadrini Data sources Financial data is from the Flow of Funds Accounts of the Federal Reserve Board. We report the
Keynesian Macroeconomic Theory
2 Keynesian Macroeconomic Theory 2.1. The Keynesian Consumption Function 2.2. The Complete Keynesian Model 2.3. The Keynesian-Cross Model 2.4. The IS-LM Model 2.5. The Keynesian AD-AS Model 2.6. Conclusion
International and national R&D outsourcing: Complements or substitutes as determinants of innovation?
International and national R&D outsourcing: Complements or substitutes as determinants of innovation? María García-Vega a,b * and Elena Huergo a,b a Dpto. de Fundamentos del Análisis Económico I. Universidad
Regret and Rejoicing Effects on Mixed Insurance *
Regret and Rejoicing Effects on Mixed Insurance * Yoichiro Fujii, Osaka Sangyo University Mahito Okura, Doshisha Women s College of Liberal Arts Yusuke Osaki, Osaka Sangyo University + Abstract This papers
Impact on households: distributional analysis to accompany Spending Review and Autumn Statement 2015
Impact on households: distributional analysis to accompany Spending Review and Autumn Statement 2015 November 2015 Impact on households: distributional analysis to accompany Spending Review and Autumn
Payment streams and variable interest rates
Chapter 4 Payment streams and variable interest rates In this chapter we consider two extensions of the theory Firstly, we look at payment streams A payment stream is a payment that occurs continuously,
Economic Growth and Government Size. Mark Pingle Professor of Economics University of Nevada, Reno. and
Economic Growth and Government Size By Mark Pingle Professor of Economics University of Nevada, Reno and Mina Mahmoudi PhD Candidate University of Nevada, Reno Short Summary There is good reason to expect
DOES A STRONG DOLLAR INCREASE DEMAND FOR BOTH DOMESTIC AND IMPORTED GOODS? John J. Heim, Rensselaer Polytechnic Institute, Troy, New York, USA
DOES A STRONG DOLLAR INCREASE DEMAND FOR BOTH DOMESTIC AND IMPORTED GOODS? John J. Heim, Rensselaer Polytechnic Institute, Troy, New York, USA ABSTRACT Rising exchange rates strengthen the dollar and lower
NOTES ON OPTIMAL DEBT MANAGEMENT
Journal of Applied Economics, Vol. II, No. 2 (Nov 1999), 281-289 NOTES ON OPTIMAL DEBT MANAGEMENT 281 NOTES ON OPTIMAL DEBT MANAGEMENT ROBERT J. BARRO Harvard University Consider the finance of an exogenous
Introduction to Economics, ECON 100:11 & 13 Multiplier Model
Introduction to Economics, ECON 1:11 & 13 We will now rationalize the shape of the aggregate demand curve, based on the identity we have used previously, AE=C+I+G+(X-IM). We will in the process develop
The Case for a Tax Cut
The Case for a Tax Cut Alan C. Stockman University of Rochester, and NBER Shadow Open Market Committee April 29-30, 2001 1. Tax Increases Have Created the Surplus Any discussion of tax policy should begin
FISCAL POLICY* Chapter. Key Concepts
Chapter 11 FISCAL POLICY* Key Concepts The Federal Budget The federal budget is an annual statement of the government s expenditures and tax revenues. Using the federal budget to achieve macroeconomic
Lecture 11: Inflation: Its Causes and Costs. Rob Godby University of Wyoming
Lecture 11: Inflation: Its Causes and Costs Rob Godby University of Wyoming Inflation: Definition Inflation is a sustained, continuous increase in the price level. It does not refer to a once-and-for-all
SAMA Working Paper: POPULATION AGING IN SAUDI ARABIA. February 2015. Hussain I. Abusaaq. Economic Research Department. Saudi Arabian Monetary Agency
WP/15/2 SAMA Working Paper: POPULATION AGING IN SAUDI ARABIA February 2015 By Hussain I. Abusaaq Economic Research Department Saudi Arabian Monetary Agency Saudi Arabian Monetary Agency The views expressed
Determinants of student demand at Florida Southern College
Determinants of student demand at Florida Southern College ABSTRACT Carl C. Brown Florida Southern College Andrea McClary Florida Southern College Jared Bellingar Florida Southern College Determining the
Optimal Paternalism: Sin Taxes and Health Subsidies
Optimal Paternalism: Sin Taxes and Health Subsidies Thomas Aronsson and Linda Thunström Department of Economics, Umeå University SE - 901 87 Umeå, Sweden April 2005 Abstract The starting point for this
Fiscal Stimulus Improves Solvency in a Depressed Economy
Fiscal Stimulus Improves Solvency in a Depressed Economy Dennis Leech Economics Department and Centre for Competitive Advantage in the Global Economy University of Warwick d.leech@warwick.ac.uk Published
The application of linear programming to management accounting
The application of linear programming to management accounting Solutions to Chapter 26 questions Question 26.16 (a) M F Contribution per unit 96 110 Litres of material P required 8 10 Contribution per
The Market-Clearing Model
Chapter 5 The Market-Clearing Model Most of the models that we use in this book build on two common assumptions. First, we assume that there exist markets for all goods present in the economy, and that
Documents de Travail du Centre d Economie de la Sorbonne
Documents de Travail du Centre d Economie de la Sorbonne Trade Liberalization and Optimal R&D Policies with Process Innovation Thanh LE, Cuong LE VAN 014.79 Maison des Sciences Économiques, 106-11 boulevard
Online Supplementary Material
Online Supplementary Material The Supplementary Material includes 1. An alternative investment goal for fiscal capacity. 2. The relaxation of the monopoly assumption in favor of an oligopoly market. 3.
ECON 5110 Class Notes Overview of New Keynesian Economics
ECON 5110 Class Notes Overview of New Keynesian Economics 1 Introduction The primary distinction between Keynesian and classical macroeconomics is the flexibility of prices and wages. In classical models
FOREIGN TAXES AND THE GROWING SHARE OF U.S. MULTINATIONAL COMPANY INCOME ABROAD: PROFITS, NOT SALES, ARE BEING GLOBALIZED.
National Tax Journal, June 2012, 65 (2), 247 282 FOREIGN TAXES AND THE GROWING SHARE OF U.S. MULTINATIONAL COMPANY INCOME ABROAD: PROFITS, NOT SALES, ARE BEING GLOBALIZED Harry Grubert The foreign share
1 National Income and Product Accounts
Espen Henriksen econ249 UCSB 1 National Income and Product Accounts 11 Gross Domestic Product (GDP) Can be measured in three different but equivalent ways: 1 Production Approach 2 Expenditure Approach
welfare costs of business cycles
welfare costs of business cycles Ayse Imrohoroglu From The New Palgrave Dictionary of Economics, Second Edition, 2008 Edited by Steven N. Durlauf and Lawrence E. Blume Abstract The welfare cost of business
Peak Debt and Income
Peak Debt and Income! Ronald M. Laszewski ( 25 July 21) Just over two years ago, in a paper on Peak Debt, I analyzed the effect that reaching a limit on the amount of debt that can be supported by personal
Problem Set #3 Answer Key
Problem Set #3 Answer Key Economics 305: Macroeconomic Theory Spring 2007 1 Chapter 4, Problem #2 a) To specify an indifference curve, we hold utility constant at ū. Next, rearrange in the form: C = ū
On the Efficiency of Competitive Stock Markets Where Traders Have Diverse Information
Finance 400 A. Penati - G. Pennacchi Notes on On the Efficiency of Competitive Stock Markets Where Traders Have Diverse Information by Sanford Grossman This model shows how the heterogeneous information
Religious Contributions: A Historical Perspective
Religious Contributions: A Historical Perspective Daniel Condon Dominican University This paper applies the rational actor approach to contributions to Catholic parishes. By examining the historical records
The Budget Surplus: A Public Choice Explanation *
The Budget Surplus: A Public Choice Explanation * Russell S. Sobel Department of Economics P.O. Box 6025 West Virginia University Morgantown, WV 26506 Draft Date: November 19, 2001 Abstract Rapid federal
MATHEMATICS OF FINANCE AND INVESTMENT
MATHEMATICS OF FINANCE AND INVESTMENT G. I. FALIN Department of Probability Theory Faculty of Mechanics & Mathematics Moscow State Lomonosov University Moscow 119992 g.falin@mail.ru 2 G.I.Falin. Mathematics
Partial Fractions. Combining fractions over a common denominator is a familiar operation from algebra:
Partial Fractions Combining fractions over a common denominator is a familiar operation from algebra: From the standpoint of integration, the left side of Equation 1 would be much easier to work with than
Regulation and Bankers Incentives
Regulation and Bankers Incentives Fabiana Gómez University of Bristol Jorge Ponce Banco Central del Uruguay May 7, 2015 Preliminary and incomplete Abstract We formally analyze and compare the effects of
An Economic Analysis of New Jersey s Realty Transfer Fee. Prepared for the. New Jersey Association of Realtors Government Research Foundation, Inc.
An Economic Analysis of New Jersey s Realty Transfer Fee Prepared for the New Jersey Association of Realtors Government Research Foundation, Inc. By the Rutgers Economic Advisory Service Center for Urban
Employment, unemployment and real economic growth. Ivan Kitov Institute for the Dynamics of the Geopsheres, Russian Academy of Sciences
Employment, unemployment and real economic growth Ivan Kitov Institute for the Dynamics of the Geopsheres, Russian Academy of Sciences Oleg Kitov Department of Economics, University of Oxford Abstract
On the irrelevance of government debt when taxes are distortionary
On the irrelevance of government debt when taxes are distortionary Marco Bassetto a,b,, Narayana Kocherlakota c,b a Department of Economics, University of Minnesota, 271 19th Ave. S., Minneapolis, MN 55455,
Pareto gains from trade: a dynamic counterexample
Economics Letters 83 (2004) 199 204 www.elsevier.com/locate/econbase Pareto gains from trade: a dynamic counterexample Gerald Willmann* Department of Economics, Institute für VWL, Universität zu Kiel,
Economics 2020a / HBS 4010 / HKS API-111 FALL 2010 Solutions to Practice Problems for Lectures 1 to 4
Economics 00a / HBS 4010 / HKS API-111 FALL 010 Solutions to Practice Problems for Lectures 1 to 4 1.1. Quantity Discounts and the Budget Constraint (a) The only distinction between the budget line with
Universidad de Montevideo Macroeconomia II. The Ramsey-Cass-Koopmans Model
Universidad de Montevideo Macroeconomia II Danilo R. Trupkin Class Notes (very preliminar) The Ramsey-Cass-Koopmans Model 1 Introduction One shortcoming of the Solow model is that the saving rate is exogenous
THE NUMBER AND THE SIZE DISTRIBUTION OF FIRMS IN SWEDEN
THE NUMBER AND THE SIZE DISTRIBUTION OF FIRMS IN SWEDEN AND OTHER EUROPEAN COUNTRIES * BY DAN JOHANSSON ** Abstract. This study investigates changes in the number and the size distribution of firms in
Taxation of Shareholder Income and the Cost of Capital in a Small Open Economy
Taxation of Shareholder Income and the Cost of Capital in a Small Open Economy Peter Birch Sørensen CESIFO WORKING PAPER NO. 5091 CATEGORY 1: PUBLIC FINANCE NOVEMBER 2014 An electronic version of the paper
Commentary: What Do Budget Deficits Do?
Commentary: What Do Budget Deficits Do? Allan H. Meltzer The title of Ball and Mankiw s paper asks: What Do Budget Deficits Do? One answer to that question is a restatement on the pure theory of debt-financed
The Friedman rule: Old and new $
Journal of Monetary Economics 54 (2007) 581 589 www.elsevier.com/locate/jme The Friedman rule: Old and new $ Firouz Gahvari Department of Economics, University of Illinois at Urbana-Champaign, Urbana,
Stock market booms and real economic activity: Is this time different?
International Review of Economics and Finance 9 (2000) 387 415 Stock market booms and real economic activity: Is this time different? Mathias Binswanger* Institute for Economics and the Environment, University
Forecasts of Macroeconomic Developments, State Revenues from Taxes and Revenue from Other Sources, 2013-2014
Ministry of Finance Chief Economist - Research, State Revenue and International Affairs June 2013 Forecasts of Macroeconomic Developments, State Revenues from Taxes and Revenue from Other Sources, 2013-2014
A.2 The Prevalence of Transfer Pricing in International Trade
19. Transfer Prices A. The Transfer Price Problem A.1 What is a Transfer Price? 19.1 When there is a international transaction between say two divisions of a multinational enterprise that has establishments
SIMPLE GUIDELINES FOR INTEREST RATE POLICY*
SIMPLE GUIDELINES FOR INTEREST RATE POLICY* José Maria Brandão de Brito** Pedro Teles*** 1. INTRODUCTION Those of us working at research departments in central banks are regularly questioned on the right
This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research
This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Factors in Business Investment Volume Author/Editor: Robert Eisner Volume Publisher: NBER
Substitution and income effects at the aggregate level: The effective budget constraint of the government and the flypaper effect
Substitution and income effects at the aggregate level: The effective budget constraint of the government and the flypaper effect Cristian F. Sepulveda * Tulane University November, 2013 Abstract This
FISCAL POLICY* Chapter. Key Concepts
Chapter 15 FISCAL POLICY* Key Concepts The Federal Budget The federal budget is an annual statement of the government s expenditures and tax revenues. Using the federal budget to achieve macroeconomic
A Short History of Government Taxing and Spending in the United States
FISCAL FACT Feb. 2014 No. 415 A Short History of Government Taxing and Spending in the United States By Michael Schuyler Fellow Key Findings Between 1900 and 2012, federal government receipts increased
External Debt and Growth
External Debt and Growth Catherine Pattillo, Hélène Poirson and Luca Ricci Reasonable levels of external debt that help finance productive investment may be expected to enhance growth, but beyond certain
The RBC methodology also comes down to two principles:
Chapter 5 Real business cycles 5.1 Real business cycles The most well known paper in the Real Business Cycles (RBC) literature is Kydland and Prescott (1982). That paper introduces both a specific theory
GROWTH, INCOME TAXES AND CONSUMPTION ASPIRATIONS
GROWTH, INCOME TAXES AND CONSUMPTION ASPIRATIONS Gustavo A. Marrero Alfonso Novales y July 13, 2011 ABSTRACT: In a Barro-type economy with exogenous consumption aspirations, raising income taxes favors
Credit Spending And Its Implications for Recent U.S. Economic Growth
Credit Spending And Its Implications for Recent U.S. Economic Growth Meghan Bishop, Mary Washington College Since the early 1990's, the United States has experienced the longest economic expansion in recorded
is identically equal to x 2 +3x +2
Partial fractions 3.6 Introduction It is often helpful to break down a complicated algebraic fraction into a sum of simpler fractions. 4x+7 For example it can be shown that has the same value as 1 + 3
A Short review of steel demand forecasting methods
A Short review of steel demand forecasting methods Fujio John M. Tanaka This paper undertakes the present and past review of steel demand forecasting to study what methods should be used in any future
Real Business Cycle Models
Phd Macro, 2007 (Karl Whelan) 1 Real Business Cycle Models The Real Business Cycle (RBC) model introduced in a famous 1982 paper by Finn Kydland and Edward Prescott is the original DSGE model. 1 The early
Both Nominal and Real South Sudan GDP figures have been produced for 2013
Press Release September 4 2014 Release of New South Sudan Gross Domestic Product (GDP) Estimates for 2013 The National Bureau of Statistics (NBS) is the official statistical agency of the Government of
Saving and the Demand for Protection Against Risk
Saving and the Demand for Protection Against Risk David Crainich 1, Richard Peter 2 Abstract: We study individual saving decisions in the presence of an endogenous future consumption risk. The endogeneity
Uncertain altruism and the provision of long term care
Uncertain altruism and the provision of long term care Helmuth Cremer Toulouse School of Economics (University of Toulouse and Institut universitaire de France) 31015 Toulouse, France Firouz Gahvari Department
Intermediate Macroeconomics: The Real Business Cycle Model
Intermediate Macroeconomics: The Real Business Cycle Model Eric Sims University of Notre Dame Fall 2012 1 Introduction Having developed an operational model of the economy, we want to ask ourselves the
State and Local Government Receipt and Expenditure Programs
SURVEY OF CUEEENT BUSINESS 11 by Karl O. Nygaard State and Local Government Receipt and Expenditure Programs local governments, in rendering a host of vital services, exercise important direct and indirect
Public Policy, Employment and Welfare in an Efficiency Wage Model
Public Policy, Employment and Welfare in an Efficiency Wage Model Ken-ichi Hashimoto Taro Kumagai This Version: January, 2006 Abstract This paper develops an efficiency wage model to highlight public policy
Inflation Adjusted Nominal Deficit: A Note on Robert Barro s Definition
Brazilian Journal of olitical Economy, vol. 23, nº 1 (89), January-March/2003 nota Inflation Adjusted Nominal Deficit: A Note on Robert Barro s Definition VIVIANE LUORINI* This note discusses the concept
Answers to Text Questions and Problems in Chapter 8
Answers to Text Questions and Problems in Chapter 8 Answers to Review Questions 1. The key assumption is that, in the short run, firms meet demand at pre-set prices. The fact that firms produce to meet
Gains from trade in a Hotelling model of differentiated duopoly
Gains from trade in a Hotelling model of differentiated duopoly Kenji Fujiwara School of Economics, Kwansei Gakuin University and Department of Economics, McGill University August 8, 009 Abstract Constructing
Causes of Inflation in the Iranian Economy
Causes of Inflation in the Iranian Economy Hamed Armesh* and Abas Alavi Rad** It is clear that in the nearly last four decades inflation is one of the important problems of Iranian economy. In this study,
The (mis)allocation of capital
The (mis)allocation of capital Abhijit V. Banerjee Esther Duflo Kaivan Munshi September, 2002 Abstract Is capital allocated so that its marginal product is equated to the market interest rate? Is the marginal
1. Firms react to unplanned inventory investment by increasing output.
Macro Exam 2 Self Test -- T/F questions Dr. McGahagan Fill in your answer (T/F) in the blank in front of the question. If false, provide a brief explanation of why it is false, and state what is true.