Christopher Tsoukis

On the optimality of public capital for long-run economic growth: evidence from panel data

The role of public capital in economic growth is examined using data from the Penn World Tables and other sources on a large number of countries. Drawing on intertemporal optimization, the theoretical framework nests the exogenous (Solow) and endogenous types of growth and is data-consistent. It is found that public capital makes a significant contribution to growth. The actual level of investment on public capital is suboptimal. Growth in recent decades can be characterized as ‘endogenous’ with little sign of convergence. There is evidence of a growth slow-down between the 1970s and 1980s. Human capital also significantly enhances growth.

Public services and endogenous growth

Abstract We investigate the role of fiscal policy when composite (non-utility-enhancing) public services complement private capital in production. In this case, taxes finance public capital investment and non-capital flow expenditure. This structure is embedded in a simple endogenous growth framework with capital adjustment costs and transitional dynamics. The Barro (1990) rule of optimal fiscal policy is generalised and shown to maximise steady-state growth under Cobb-Douglas technology. It is also welfare-optimal in a model without capital in the generation of services. In the general case, whilst the rule delivers too high rates of tax and public investment for welfare maximisation, the associated loss in utility may not be prohibitively high.

A forward looking model of housing construction in the UK

Abstract This paper identifies and juxtaposes different approaches to modelling housing construction. The first two are based on dynamic marginal pricing considerations and emphasize adjustment costs and the necessary time to build respectively. Importantly, both these models introduce some degree of forward looking behaviour into the house building decision. Both approaches are able to explain aspects of UK housing starts, 1970–90. Non-nested testing showed that the time to build story is more powerful in explaining the data set at hand. However, we have not been able to find any evidence in support of third hypothesis, namely that quantity signals, proxied by turnover in the housing market, influence starts. The start to completion lag, in turn, is found to be affected by the interest rate representing the oppurtunity cost of delayed completions.

Implications of intertemporal optimization for house and land prices

The Euler equation is used for the intertemporal allocation of durable goods in conjunction with a simple model of housing flow supply to derive implications for the relation between house and land prices. Data from England and Wales fails a key time series test in this respect. The rejection of the theory is shown to be mainly due to the specification of the housebuilding industry: perfect competition makes house prices cointegrated with land prices and housebuilding costs. There is also evidence that borrowing constraints impair the validity of the representative-agent framework for the housing sector.

Ricardian causal ordering and the relation between house and land prices: evidence from England

This letter tests the relevance of the Ricardian interpretation of the causal relationship between rent and corn price for the English housing market, by testing for strong exogeneity between house and land prices. The results are mixed. On the one hand they support the weak exogeneity of house prices, while they fail to accept that land prices are Granger-caused by house prices.

STATUS, FERTILITY, GROWTH AND THE GREAT TRANSITION

We develop an overlapping generation model to examine how the relationship between status concerns, fertility and education affect growth performances. Results are threefold. First, we show that stronger status motives heighten the desire of parents to have fewer but better educated children, which may foster economic development. Second, the government should sometimes postpone the introduction of an economic policy in order to maintain the process of economic development, although such a policy aims to implement the social optimum. Third, status can alter the dynamic path of the economy and help to explain the facts about fertility during the great transition.

Price Rigidities, Inflationary Finance and Long-Run Growth

The paper considers a monopolistically competitive intertemporally optimizing monetary economy featuring long-term growth. Inflation is generated through sluggish price-setting and contributes to budgetary finance through seignorage. This setup permits exploration of the interaction between inflation and growth in a tractable way. Superneutrality holds in the long but not the short run. The budget deficit fuels inflation with a hysteresis. Growth and inflation are negatively correlated in the long run, with causality running from the former to the latter, and positively correlated in the short run regardless of the origin of shocks. Price flexibility precipitates adjustment but appears also to destabilize output. Copyright 2000 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Status in a Canonical Macro Model: Labour Supply, Growth and Inequality

We introduce status in a standard (‘canonical’) macro model of growth and distribution. Status is introduced in a flexible way that allows for intrinsic and extrinsic motivation, loss aversion, heterogeneity in motives and inequality aversion. We incorporate such considerations in the model and derive implications for growth, inequality and labour supply. We review empirical evidence related to these variables, and show that the predictions of the model with status are consistent with these observations. Thus, status can offer a rich set of new explanations related to important empirical patterns.

Nominal inertia and shock persistence in UK business cycles

A structural VAR methodology is used for UK data to identify and map out the effects of innovations in the money supply, employment, output, wages and prices. Moreover, bands of two standard errors are computed for the impulse response functions so that comment may be made on the significance of the dynamic responses of the variables to the simulated shocks. This allows conclusions to be drawn on the persistence of shocks. Results suggest that output variation is largely determined by aggregate demand shocks over the business cycle frequency. Importantly, evidence is also found of rigidities in the form of price inertia and nominal wage stickiness.

SOCIAL CONFLICT, GROWTH AND FACTOR SHARES

Standard growth theory is based on atomistic agents with no strategic interactions among them. In contrast, we model growth as resulting from a one-off, strategic game between workers and owners of capital (capitalists) on factor shares, in an otherwise standard AK growth model. The resulting distribution of income between factors further determines the marginal revenue product of capital and the rate of growth. We analyse the properties of four equilibria: competitive, Stackelberg equilibrium, a hybrid non-cooperative regime, and cooperative (Nash) solution. We show that our model provides a potentially richer view of the growth process than comparable models, and endogenises a key aspect of the social contract.