Chetan Ghate
Indian Statistical Institute
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Featured researches published by Chetan Ghate.
Structural Change and Economic Dynamics | 2002
Chetan Ghate; Paul J. Zak
Abstract US government expenditures increased rapidly during the post-war period, then slowed in the 1980s and began falling in 1992. To examine the dynamics of the growth and subsequent reduction in government spending, we present a general equilibrium growth model in which politicians chose government spending to maximize support by their constituents. That is, output and government spending are endogenous and jointly determined. The model predicts that government expenditures will initially mimic Wagners law—the tendency for government spending to increase with GDP—but eventually diverge from output due to the growth of the welfare state. After government expenditures become large, we identify an endogenous threshold on the economys growth path where it is optimal for politicians to shrink the welfare state, cut taxes, and stimulate output growth. We show that the policies chosen by politicians are Pareto suboptimal and cause endogenous cycles in output. Such cycles are of several types, and we characterize when the equilibrium growth path will result in a reduction in the size of the welfare state, as well as when the welfare state cycles between small and large.
Journal of Development Economics | 2012
Chetan Ghate; Stephen Wright
We analyze a panel of output series for India, disaggregated by 15 states and 14 broad industry groups. Using principal components (Bai, 2004; Bai and Ng, 2004) we find that a single common “V-factor” captures well the significant shift in the cross-sectional distribution of state-sectoral output growth rates since the 2nd half of the 1980s. The timing of the turnaround implied by the V-factor is more closely related to the pattern of policy reforms than has been found in previous research. Regression-based analysis also provides some insights into the uneven distribution of the turnaround across Indian states.
Review of Development Economics | 2003
Chetan Ghate; Quan Vu Le; Paul J. Zak
The paper presents a model of optimal government policy when policy choices may exacerbate sociopolitical instability (SPI). The authors show that optimal policy that takes into account SPI transforms a standard concave growth model into a model with both a poverty trap and endogenous growth. The resulting equilibrium dynamics inherit the properties of government policies and need not be monotone. Indeed, for a broad set of conditions, government policy is unable to eliminate the poverty trap; when these conditions do not hold, “most” countries eventually reach a balanced growth path. The predictions of the model are tested by developing three new measures of SPI for a panel of 58 countries. Estimating optimal policies and the growth equation derived from the model reveals strong support for the theory.
B E Journal of Macroeconomics | 2004
Satya P. Das; Chetan Ghate
In comparison to the standard literature on inequality and growth which assumes the former to be exogenous, we formulate a model in which inequality and growth are both endogenous. Long-run distribution, at least locally, is shown to be independent of the initial distribution of factor ownership. It is shown that exogenous policy changes that are primarily targeted towards growth and foster less inequality do enhance growth. But policies that are primarily redistributive and imply a more equal distribution reduce growth. This is consistent with recent empirical work which shows that inequality and growth may be positively related.
Journal of Economic Policy Reform | 2008
Chetan Ghate
We construct a simple political economy model with imperfect capital markets to explain infrastructure investments across Indian states. The model predicts that: i) the fixed cost of accessing the modern sector, ii) the initial stock of infrastructure, iii) median voter wealth, and iv) corruption, can all potentially explain why different states have different levels of infrastructure investments. The theoretical model is motivated by recent empirical work on India that argues that the reason per‐capita income across Indian states has diverged is because of the distribution of infrastructure investments.
B E Journal of Macroeconomics | 2003
Chetan Ghate
Is it politically feasible for governments to engineer endogenous growth? This paper illustrates two reasonable political decision mechanisms by which fiscal policy generates endogenous growth with a single accumulable factor, and a constant returns to scale production technology without production externalities. In the first mechanism, policies are chosen by the government to maximize constituent support by raising aggregate income. In the second mechanism, policies are determined in a voting equilibrium where agents are concerned only with their own incomes. We demonstrate that policies that target aggregates generate balanced growth and are Pareto optimal. Policies chosen by the median voter also produce balanced growth, but result in public investment 50 percent below the socially optimal level. However, we identify a plausible restriction under which median voting replicates the socially optimal level. This shows that both mechanisms are linked through their effects on asset distribution.
B E Journal of Macroeconomics | 2006
Debajyoti Chakrabarty; Areendam Chanda; Chetan Ghate
We construct an overlapping generations model to study the effect of capital controls on human capital investments and the incidence of redistributive taxation in a growing economy. We argue that the conventional wisdom linking higher capital controls to lower growth is reproduced only when an economy is sufficiently developed. For under-developed countries, higher capital controls are beneficial for human capital as well as domestic physical capital accumulation suggesting that the conventional wisdom does not apply. In an augmented version of the model, we show that a modern sector characterized by positive levels of investment in education may not exist unless capital controls are sufficiently high. Higher capital controls make it feasible for a modern sector to exist by lowering the threshold income level required by workers to invest in human capital. Our results are consistent with recent evidence suggesting that capital account liberalization positively affects growth only after a country has achieved a certain threshold level of absorptive capacities.
Australian Economic Papers | 2001
Chetan Ghate
This paper constructs a one-sector growth model to examine the impact of political lobbying on the formation of fiscal policy. The model predicts that lobbying can induce endogenous regime switches, development traps, and a sub-optimal allocation of government expenditures between productive and unproductive ends, leading to long run income losses in the economy. A calibrated version of the model is used to generate estimates of the dynamic social costs of lobbying by estimating the optimal savings rates necessary to induce balanced growth in the economy. Finally, the model predicts that lobbying may influence the growth of government. Copyright 2001 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia
Archive | 2014
Michael Callaghan; Chetan Ghate; Stephen Pickford; Francis Rathinam
Since the unfolding of the 2008 global financial crisis, the G20 has played a major role in coordinating macroeconomic policies of major economies and reviving the world economy. As the world’s primary forum for international economic cooperation, its objectives have been to ensure more sustainable and balanced growth, achieve economic and financial stability and reform the prevailing international financial architecture. In the wake of the crisis, there was a sense of urgency and strong agreement to enact extraordinary policy measures to fend off the collapse of the real sector because of the “collapse of confidence” in the financial sector. The G20 performed spectacularly in this regard: global gross domestic product (GDP) contracted less than expected in 2009 and rebounded faster than expected in 2010. These coordinated actions were widely credited for forestalling a second Great Depression, with the G20 declaring victory at their third summit at Pittsburgh in September 2009 (“It worked”).
Finanzarchiv | 2007
Chetan Ghate
We examine the link between voting outcomes, wealth heterogeneity, and endogenous labor - leisure choice in the majority-voting - endogenous-growth frameworks of Alesina and Rodrik (1994) and Das and Ghate (2004). We augment these frameworks to incorporate leisure-dependent utility and allow households to vote on factor-specific income taxes. When agents vote on factor-specific taxes, we show that the asymptotic convergence of factor holdings does not imply unanimity over the growth-maximizing tax policy in the steady state. Unanimity over growth-maximizing policies holds only when agents vote on a general income tax,and when agents vote on factor-specific taxes but labor is exogenous.