Been-Lon Chen

Tax evasion in a model of endogenous growth

This paper integrates tax evasion into a standard AK growth model with public capital. In the model, the government optimizes the tax rate, while individuals optimize tax evasion. It studies tax rate, tax evasion and economic growth, and compares them with otherwise identical economies except those without tax evasion. It inquires into the effects of three government policies on tax rate, tax evasion, and economic growth. It finds that an increase in both unit cost of tax evasion and punishment–fines reduces tax evasion, whereas an increase in tax auditing reduces tax evasion only if the cost of tax enforcement is not too high. The three policies theoretically have ambiguous effects upon economic growth, due to their indirect effects upon tax evasion and optimal tax rate. The model is calibrated to quantitatively assess the effects of the three above-mentioned policies. It finds that the three policies are quantitatively effective in discouraging tax evasion, but with small growth effects, unless the degree of government externality is very high. (Copyright: Elsevier)

An inverted-U relationship between inequality and long-run growth

Abstract The relationship between income distribution and long-run economic growth has been a popular topic in recent economic research. Existing theoretical works find either a positive or a negative relationship, but not both. In this paper we propose an inverted-U relationship between initial income distribution and long-term economic growth, and estimate and test the relationship using cross-country data.

A two-sector model of endogenous growth with leisure externalities

This paper considers the impact of leisure preference and leisure externalities on growth and labor supply in a Lucas (1988) [12] type model, as in Gomez (2008) [7], with a separable non-homothetic utility and the assumption that physical and human capital are both necessary inputs in both the goods and the education sectors. In spite of the non-concavities due to the leisure externality, the balanced growth path is always unique, which guarantees global stability for comparative-static exercises. We find that small differences in preferences toward leisure or in leisure externalities can generate substantial differences in hours worked and growth, which may play a significant role in explaining differences in growth paths between the US and Europe, in addition to the mechanisms uncovered in Prescott (2004) [15] relying on differing marginal tax rates on labor income. Our model indicates, however, that a higher preference for leisure or leisure externality implies less growth but also less education attainment, which seems counterfactual.

Time-Series Wage Differential in Taiwan: The Role of International Trade

Rising relative wages between skilled and unskilled workers in developed countries has been a popular subject of recent studies. This paper analyzes Taiwan, a semi-developed economy, where the relative wage reveals a declining trend since the mid-1980s. The authors study the role of international trade. A major point of departure is to distinguish the effects of net exports to OECD countries from those to non-OECD countries. The paper also differentiates the effects of net exports to China from those to non-OECD countries except China. It is found that net exports to the OECD countries raise the relative wage of skilled workers, whereas net exports to non-OECD countries and China diminish the relative wage. Moreover, the impacts of net exports to China are much larger than those to OECD and other non-OECD countries. The documented wage effects of international trade in this work diverge from what existing works have argued based on Heckscher-Ohlin theory. Copyright 2001 by Blackwell Publishing Ltd

Agricultural Productivity and Economic Growth: Role of Tax Revenues and Infrastructures

To encourage economic growth in a developing economy, higher agricultural productivity has been believed to enhance the manufacturing sectors development, which provides the transition into industrialization. Although this positive linkage between agricultural productivity and economic growth has been judged to be incorrect, based upon the comparative advantage argument in a model of small-open economies by Matsuyama (1992), this article revisits the linkage by extending Matsuyamas model by introducing the revenue-generating effect, which is missing in his model. As agriculture is an important source of taxation in an early stage of economic development, higher agricultural productivity generates more tax revenues and facilitates spending on infrastructure. By introducing government taxation and infrastructure expenditure, we show that under proper conditions, higher agricultural productivity creates a positive growth effect via the revenue generation that dominates the negative growth effect through the comparative advantage. Moreover, introducing infrastructure expenditure may shift the manufacturing sectors original comparative disadvantage into comparative advantage, thereby enabling a trapped economy to take off and eventually industrialize. From the early stages of economic development in Japan, Taiwan, and Korea, we can quantitatively assess an obvious net positive effect of agricultural productivity upon labor allocation and economic growth.

Labor-Market Frictions, Human Capital Accumulation, and Long-Run Growth: Positive Analysis and Policy Evaluation

We construct a search model with endogenous human capital and labor participation to study the growth effects of short-run frictions and the effectiveness of human capital policies. Employment, learning effort, and output growth increase with more effective learning, better labor-market matching, lower job separation, or less costly vacancy creation. Although output growth, employment, vacancy creation, and learning and search effort are most responsive to changes in a human capital policy that directly affects learning effort, such a policy need not be more beneficial for welfare. The effects of human capital policies become larger as the severity of labor-market frictions rises.

WELFARE IMPLICATIONS AND EQUILIBRIUM INDETERMINACY IN A TWO-SECTOR GROWTH MODEL WITH CONSUMPTION EXTERNALITIES

In one-sector neoclassical growth models, consumption externalities lead to an inefficient allocation in a steady state and indeterminate equilibrium toward a steady state only if there is a labor-leisure tradeoff. This paper shows that in a two-sector neoclassical growth model, even without a labor-leisure tradeoff, consumption spillovers easily lead to an inefficient allocation in a steady state and indeterminate equilibrium toward a steady state. Negative consumption spillovers that yield over-accumulation of capital in a one-sector model may lead to under-accumulation or an over-accumulation of capital in two-sector models depending on the relative capital intensity between sectors. Moreover, a two-sector model economy with consumption externalities is less stabilized than an otherwise identical one-sector model economy.

A One-Sector Growth Model with Consumption Standard: Indeterminate or Determinate?

In a representative agent, one-sector growth model in which the discounting is decreasing in the consumption standard measured as the current average consumption flow, Drugeon (1998) establishes local indeterminacy. This paper extends Drugeons setup in the discount rate. In our setup, the consumption standard is a habit stock that a weighted average of the whole history of average consumption flows in the past. Local indeterminacy emerges only when the speed of habit formation tends to infinity; otherwise, local indeterminacy cannot appear, no matter how large the habit affects the discount rate.

Picking winners and industrialization in Taiwan

Taiwans successful economic growth and development are renowned. In this paper it is argued and documented that the success has been due to rapid industrialization in the past decades. During industrialization when manufacturing expanded, textiles and apparel played a critical role, to which many factors contributed. One factor was the technological properties of textile and apparel. Another was governmental policies, especially on trade. External economies of textiles and apparel on other manufacturing industries, especially the chemical industry, were also important. It is shown how a developing economy takes a first step in picking winners for its economic development.

The Role of Agricultural Productivity on Structural Change

Many authors have estimated and found that the productivity growth in agriculture is higher than that in non-agriculture in todays richest countries. Several papers suggested that growth in agricultural productivity was essential for todays richest countries to take off early. However, few articles noticed that growth in agricultural productivity is critical in driving structural change in todays richest countries. This paper studies a two-sector neoclassical growth model with subsistence agricultural consumption and shows that growth in agricultural productivity plays a more important role than growth in non-agricultural productivity in governing massive structural change in todays richest countries.