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Title :Essays in macroeconomics and public finance
Creator :Vella, Eugenia
Contributor :Kalyvitis, Sarantis (Επιβλέπων καθηγητής)
Stengos, Thanasis (Εξεταστής)
Economides, George (Εξεταστής)
Athens University of Economics and Business, Department of International and European Economic Studies (Degree granting institution)
Type :Text
Extent :142p.
Language :en
Abstract :The objective of this thesis is to provide new insights into the macroeconomic effects of government spending by analyzing theoretically and empirically different expenditure components. The first part studies the productivity effects of public spending on infrastructure in the U.S. by distinguishing between two main components: capital outlays, which aim at the formation of new infrastructure, and operations and maintenance (O&M) outlays, which are required for the repair and safe operation of the existing infrastructure stock. First, I use a so far unexplored time-series dataset from the U.S. Congressional Budget Office to investigate the productive impact of public infrastructure spending by taking into account its composition (capital and O&M) for each government level (federal government and states and localities). The main research question formulated is twofold, namely whether a marginal dollar should be spent for building new infrastructure or repairing the existing one and by which level of government should these expenditures be undertaken. Using a standard GMM framework for the econometric analysis, I find that a rise (fall) in infrastructure expenditures by states and localities (the federal government) would enhance future productivity growth and that the rise in state and local spending should mainly come from additional O&M outlays in the transport sector. Second, I develop a state-level analysis of the productivity effects of infrastructure's O&M spending by accounting for the presence of interstate transboundary spillovers of both capital and O&M spending. As a theoretical background, I first build a multi-jurisdiction model with productive public expenditure, endogenous capital depreciation, network structure and different levels of government. The model illustrates that the spillover effects of O&M spending, which is financed locally, may be substantially different from those of capital outlays, whose provision is based on a co-financing scheme through local taxation and federal matching grants, with the latter being financed by local taxes. In the empirical analysis, I use a new state-level dataset for capital and O&M spending on water and transportation infrastructure, which I have assembled for the period 1978-2000 based on the Census Bureau's State and Local Government Finances series. I follow a semiparametric methodology that allows for tracing potential nonlinearities in the estimated relationships and deriving output elasticities for each state and time period. The empirical findings confirm, first, that interstate spillovers are significantly positive and exceed within-state impacts for O&M (and capital) spending, implying that there is a substantial wedge between the aggregate and the own-state rates of return. Second, the spillover effect of O&M spending is found to be much higher than the corresponding impact of capital spending. The second part of the thesis examines the role of fiscal policy in the form of government spending on infrastructure and environmental care in a growth model with endogenous subjective discounting. I demonstrate using this general-equilibrium model how shifting the allocation of resources from productive government spending to environmental care, which is labeled as a "green spending reform", can procure a double dividend by raising long-run growth and improving environmental conditions, although the environment does not impact the production technology. An immediate implication is that endogenous growth-maximizing policy requires that a non-zero share of government revenues is allocated to the environment vis-à-vis infrastructure. The main mechanism of the model arises from the assumption of endogenous discounting to environmental quality, which can capture the well documented in the literature "life-expectancy effect" of the latter. By promoting agents' patience and thus inducing higher savings, which support capital accumulation, environmental spending plays an indirect productive role, which in combination with the standard growth-promoting role of infrastructure investment, creates a trade-off between the two types of expenditures. As a result, the relationship between long-run growth and the resource allocation to infrastructure vis-à-vis the environment can become non-monotonic.
Subject :Macroeconomics
Public finance
Date :30-09-2013
Licence :

File: Vella_2013.pdf

Type: application/pdf