Essays on the theory of productive government activity and economic growth [Elektronische Ressource] / vorgelegt von Johanna Kühnel

Informations

• Publié par: ruprecht-karls-universitat_heidelberg
• Publié le: 01 janvier 2010
• Nombre de lectures: 11
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Essays on the Theory of
Productive Government Activity
and Economic Growth
Inauguraldissertation zur Erlangung der Wurde
eines Doktors der Wirtschaftswissenschaften an der
Fakult at fur Wirtschafts- und Sozialwissenschaften
der Ruprecht-Karls-Universit at Heidelberg
vorgelegt von
Johanna Kuhnel
Dezember 2010Acknowledgments
First and foremost, I would like to thank my supervisor Andreas Irmen for his excellent
guidance, ongoing support, and remarkable availability during the writing of this disser-
tation. I have bene ted a lot from his valuable comments and motivating feedback on
the content of my research and the way of presenting it. I am grateful for his continuous
help and con dence in me.
I also wish to thank Berthold Wigger for his immediate willingness to join the dissertation
committee.
Moreover, I would like to express my gratitude to all members of the Chair of Economic
Policy who have assisted and accompanied me over the past years. Special thanks go
to Thomas Eife who was always ready to discuss my work and provided many helpful
comments. I have learned a lot from his suggestions and advice and greatly appreciate
his encouraging support at the right time.
Many other colleagues and friends have helped to make my time at the University of
Heidelberg both enjoyable and enriching, especially Jianfeng Chen, Nathalie Jorzik,
Andrea Leuermann, Christoph Lipponer, Amaranta Melchor del R o and of course all
my AWI football friends. Furthermore, I would like to thank my family and friends
outside university who always believed in me.
Finally, I am deeply grateful to my husband Heriberto, my parents, and my brother
Matthias for everything. Without their love, unconditional support, and patience this
dissertation would not have been possible. It is dedicated to them.
iContents
1 Introduction 1
2 Productive Government Expenditure and
Economic Growth - A Survey 10
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 The Basic Analytical Framework . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Productive Government Activity as a Flow . . . . . . . . . . . . . . . . . 15
2.3.1 The Pure Public Good Case . . . . . . . . . . . . . . . . . . . . . 15
2.3.2 Productive Public Expenditure and Adjustment Costs . . . . . . 18
2.3.3 Public Goods Subject to Congestion . . . . . . . . . . . . . . . . 21
2.3.3.1 Relative Congestion Without Excludability . . . . . . . 23
2.3.3.2 Relative With Excludability . . . . . . . . . 24
2.3.4 Public Consumption Services . . . . . . . . . . . . . . . . . . . . 27
2.3.5 Endogenous Labor Supply . . . . . . . . . . . . . . . . . . . . . . 31
2.3.6 Small Open Economy . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.3.6.1 Exogenous Labor Supply . . . . . . . . . . . . . . . . . . 36
2.3.6.2 Endogenous Labor Supply . . . . . . . . . . . . . . . . . 39
2.4 Productive Government Activity as a Stock . . . . . . . . . . . . . . . . 41
2.4.1 Public Goods Subject to Congestion . . . . . . . . . . . . . . . . 41
2.4.2 Maintenance of Public Capital . . . . . . . . . . . . . . . . . . . . 46
2.4.3 Stock-Flow Model of Public Goods . . . . . . . . . . . . . . . . . 49
iiiCONTENTS iv
2.5 Variations on a Theme . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
2.5.1 Stochastic Environments . . . . . . . . . . . . . . . . . . . . . . . 50
2.5.2 Increasing Returns . . . . . . . . . . . . . . . . . . . . . . . . . . 51
2.5.3 Non-Scale Growth . . . . . . . . . . . . . . . . . . . . . . . . . . 52
2.6 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
2.7 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
3 Innovation, Growth, and the Optimal Enforcement of the Rule of Law 63
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
3.2 The Basic Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
3.3 Exogenous Strength of the Rule of Law . . . . . . . . . . . . . . . . . . . 68
3.3.1 Dynamic General Equilibrium . . . . . . . . . . . . . . . . . . . . 69
3.3.2 Welfare Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
3.4 Endogenous Strength of the Rule of Law . . . . . . . . . . . . . . . . . . 73
3.4.1 Final Output as an Investment in the Enforcement of the Rule of
Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
3.4.1.1 Dynamic General Equilibrium . . . . . . . . . . . . . . . 74
3.4.1.2 Welfare Analysis . . . . . . . . . . . . . . . . . . . . . . 75
3.4.2 Policemen as an Investment in the Enforcement of the Rule of Law 78
3.4.2.1 Dynamic General Equilibrium . . . . . . . . . . . . . . . 79
3.4.2.2 Welfare Analysis . . . . . . . . . . . . . . . . . . . . . . 80
3.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
3.6 Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
3.7 Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
4 Population Aging, Endogenous Government Spending, and Economic
Growth in a Heterogeneous In nitely-Lived Agent Framework 101
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
4.2 The Economic Environment . . . . . . . . . . . . . . . . . . . . . . . . . 105CONTENTS v
4.2.1 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
4.2.2 Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
4.2.3 Government Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 108
4.2.4 Economic Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . 109
4.3 The Political Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . 111
4.3.1 Policy Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
4.3.2 Policy Choice under Majority Voting . . . . . . . . . . . . . . . . 113
4.4 Implications of Population Aging . . . . . . . . . . . . . . . . . . . . . . 114
4.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
4.6 Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
4.7 Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
4.7.1 Economic Equilibrium with an Equal Initial Capital Distribution 122
4.7.2 Non-Separable Preferences . . . . . . . . . . . . . . . . . . . . . . 123
5 Population Aging, the Composition of Government Spending, and Eco-
nomic Growth in the Politico-Economic Equilibrium of a Simple OLG
Economy 128
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
5.2 The Economic Environment . . . . . . . . . . . . . . . . . . . . . . . . . 133
5.2.1 Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
5.2.2 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
5.2.3 Government Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 136
5.2.4 Timing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
5.2.5 Economic Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . 137
5.3 Politico-Economic . . . . . . . . . . . . . . . . . . . . . . . . 139
5.3.1 Probabilistic Voting . . . . . . . . . . . . . . . . . . . . . . . . . . 139
5.3.2 De nition of the Politico-Economic Equilibrium . . . . . . . . . . 140
5.3.3 Solving for the P . . . . . . . . . . . 141CONTENTS vi
5.4 The Ramsey Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
5.5 Implications of Population Aging . . . . . . . . . . . . . . . . . . . . . . 146
5.5.1 Declining Population Growth . . . . . . . . . . . . . . . . . . . . 146
5.5.2 Increasing Life Expectancy . . . . . . . . . . . . . . . . . . . . . . 149
5.6 Discussion and Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . 151
5.6.1 Other Voting Equilibria . . . . . . . . . . . . . . . . . . . . . . . 151
5.6.1.1 Voting Equilibrium under Commitment to Constant Pol-
icy Paths . . . . . . . . . . . . . . . . . . . . . . . . . . 151
5.6.1.2 Myopic Voting Equilibrium . . . . . . . . . . . . . . . . 153
5.6.2 Alternative Utility Functions . . . . . . . . . . . . . . . . . . . . . 155
5.6.2.1 Constant Intertemporal Elasticity of Substitution Utility
Function . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
5.6.2.2 Non-Separable Preferences . . . . . . . . . . . . . . . . . 160
5.7 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
5.8 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Bibliography 180Chapter 1
Introduction
Public expenditure on infrastructure such as roads, ports, or communication systems,
public research and education spending as well as the enforcement of the \rule of law"
are vital to the production possibilities of rms, and thus to the economic potential of an
economy. Easterly and Rebelo (1993) and, more recently, Canning and Pedroni (2004)
nd empirical evidence for long-run growth e ects associated with public investment in
infrastructure. Similarly, Knack and Keefer (1995) and Kaufmann and Kraay (2002)
establish that the strength of the rule of law has a positive impact on long-run economic
growth. This dissertation studies in four essays the theoretical relationship between such
forms of productive government activity and