Apostolis Philippopoulos

Indeterminacy and fiscal policies in a growing economy

This paper studies the dynamic properties of a standard one-sector model of endogenous growth with inelastic labor supply, in which capital taxes are used to

On the dynamics of growth and fiscal policy with redistributive transfers

nance public production and consumption services. The government is benevolent and chooses its tax policy by taking into account the decentralized competitive equilibrium. Within this second-best setup, we establish conditions for multiple balanced growth paths, in conjunction with indeterminacy of transitional dynamics. The mechanism for global and local indeterminacy is a simple combination of public production services (that provide production externalities to private

Inflationary expectations, political parties and the exchange rate regime: Greece 1958-1989

rms, and hence cause a wedge between private and social returns), public consumption services (that provide direct utility to households) and endogenously chosen distorting taxes.

Interaction of Human and Physical Capital in a Model of Endogenous Growth

Abstract This paper continues the study of optimal fiscal policy in a growing economy, by studying the case in which the government simultaneously provides three main categories of expenditures; public production services, public consumption services and state-contingent redistributive transfers. We make two contributions to the literature. Firstly, we set up a dynamic general equilibrium model of endogenous growth, in which rational voters choose the capital tax rate and the allocation of total tax revenues between productive government expenditures (public production services) and non-productive ones (public consumption services and redistributive transfers). We study the properties of these policies and their impact on growth. Secondly, we deliver analytic results for the long-run and transitional dynamics of optimal fiscal policies and endogenous growth. In particular, we establish existence and investigate the possibility of uniqueness and dynamic determinacy, and how this possibility is affected by the chosen allocative and redistributive policies.

Optimal Protection of Property Rights in a General Equilibrium Model of Growth

Abstract We investigate the applicability of the ‘rational partisan’ and ‘exchange rate regime’ models of inflation to the case of Greece. Greece has fully participated in the Bretton Woods system of fixed exchange rates until 1972, but has since followed an independent ‘crawling peg’ policy. It has had a polarized political system and a problem of persistently high inflation in the last two decades. Outside fixed exchange rate regimes, persistently high inflation can be attributed to the failure of political parties to pre-commit to price stability. The higher aversion of ‘socialists” to unemployment results in an inflation rate which is higher by 8 percentage points than under the more anti-inflationary ‘conservatives’. Unemployment is independent of the identity of the party in power and elections.

HOW SHOULD THE GOVERNMENT ALLOCATE ITS TAX REVENUES BETWEEN PRODUCTIVITY- ENHANCING AND UTILITY- ENHANCING PUBLIC GOODS?

A model of development is presented where growth is initially driven by physical capital accumulation, as in the neoclassical model. After a critical level of physical capital is reached, the economy ‘takes off’ and enters a stage of sustained growth driven by human capital accumulation. The link between these two stages is provided by the assumption that private incentives for human capital accumulation increase with the average levels of human and physical capital. At the early stages of development, these incentives are low so the level of human capital stays stagnant until sufficient physical capital is accumulated. Other results are that some economies may reach a steady state of physical capital before a ‘take-off’ is possible. This is especially likely for economies in which agents have low savings propensities. Such economies remain stuck in a no-growth equilibrium forever. Economies that do grow may experience endogenous cycles if the return to investment in human capital is sufficiently increasing in the level of physical capital.

Are Nash tax rates too low or too high?: The role of endogenous growth in models with public goods

We incorporate weak property rights into an otherwise standard general equilibrium model of growth and second-best optimal policy. In this setup, the state plays two of its key roles: it protects property rights and provides public services. The government chooses policy (the income tax rate, as well as the allocation of collected tax revenues between law enforcement and public services) to maximize the growth rate of the economy. The focus of our analysis is on how weak property rights generate multiple decentralized competitive equilibria, the different properties of these equilibria, and the implications of second-best optimal policies.

Fiscal policy and politics: theory and evidence from Greece 1960-1997

We present a fairly standard general equilibrium model of endogenous growth with productive and non-productive public goods and servives. The former enhance private productivity and the latter private utility. We solve for Ramsey second-best optimal policy (where policy is summarized by the paths of the income tax rate and the allocation of the collected tax revenues between productivity-enhancing and utilityenhancing public expenditures). We show that the properties and implications of second-best optimal policy (a) differ from the benchmark case of the social planner’s first-best allocation (b) depend crucially on whether public goods and services are subject to congestion.

How elections affect fiscal policy and growth: revisiting the mechanism

We reconsider the conventional wisdom that, in the presence of public goods and distortionary taxation, Nash tax rates are inefficiently low due to free riding. We use a model in which the public good is natural resources. Specifically, a general equilibrium model of a world economy, in which there is long-term growth and world-wide environmental quality has public good features. We show that the type of the spillover effect from one country/player to another (and hence whether we under-tax, or over-tax, in a Nash equilibrium relative to a cooperative one) can be reversed when we introduce dynamics. In particular, the spillover effect changes from positive to negative once the same model allows for economic growth. This implies that, when the economy grows, Nash pollution tax rates are inefficiently high. This happens because in a growth model, medium- and long-run capital tax bases are elastic. In our AK growth model, the long-run effect on growth and tax bases more than outweighs any short-run free rider effects, and therefore Nash tax rates are too high.

Are exchange rate bands better than fixed exchange rates? The imported credibility approach

Abstract We present a two-party dynamic model of optimal fiscal policy which integrates stabilizing, electoral and partisan motives. The political equilibrium determines the path of government expenditures, taxes and debt. It shows how electoral and partisan policies weaken stabilizing feedback efforts. When we use Greek data, the theoretical restrictions are not rejected and we get sensible estimates. The early period 1960–1973 and the Maastricht Treaty period 1993 to today differ from the period in between, 1974–1992. There is evidence of pre-election cycles during 1960–1992. There are no partisan differences; both Conservative and Socialist administrations can be equally blamed for fiscal laxity. The latter started in 1974, became stronger in the late 1970s and continued until the early 1990s.