Jhy-yuan Shieh

The impact of military burden on long-run growth and welfare

Abstract This paper presents an endogenous growth model to examine how a governments resource allocation between the defense and non-defense sectors will govern both economic growth and social welfare. We demonstrate that there exists an optimal defense expenditure share that maximizes the economic growth rate, but this rate is smaller than the welfare-maximizing share. This result can be viewed as a possible vehicle to explain why in many developing countries arms limitation and disarmament negotiations usually have low performance (even failing).

Anticipated Environmental Policy and Transitional Dynamics in an Endogenous Growth Model

This paper makes a new attempt toinvestigate how an anticipatedenvironmental policy governs the transitionaldynamics of an economy when pollutionexternality is taken into account. Themodeling strategy we use is an AK technologyendogenous growth framework with an endogenousleisure-labor choice. It is found that, unlikeinelastic labor supply framework, a rise inpublic abatement expenditure will stimulate thebalanced economic growth rate. It is alsofound that public abatement technology plays animportant role in determining the transitionaladjustment of the economic growth rate inresponse to a pre-announced environmentalpolicy.

AN ENDOGENOUS GROWTH MODEL OF CAPITAL AND ARMS ACCUMULATION

This paper attempts to examine the effect of an anticipated foreign military threat on the steady‐state growth rate and the transitional behavior of the economy. The modeling strategy follows the Sandler and Hartley (1995) and Dunne et al. (2005) viewpoints to emphasize the role of national defense in affecting growth from the perspective of both the demand and the supply sides. We thus combine the public capital version of endogenous growth with a framework of competitive arms accumulation. It is found that the key factor determining the steady state and the transitional effects of a rise in the foreign military threat on the home weapon–capital ratio, the consumption–capital ratio, and the rate of economic growth, is the degree of relative risk aversion.

Optimal Fiscal Policies, Congestion and Over-entry

By shedding light on market imperfections and the congestion of public goods, we show that free entry in a market equilibrium will lead to excessive entry relative to the social optimum. Moreover, by specifying a generalized congestion function, it is also shown that different fiscal policies, including labor income tax, capital income tax and government expenditure, play a distinct role in terms of remedying market distortions. Specifically, optimal income taxes decrease with the degree of market imperfections in order to remove the monopoly inefficiency, while they increase with the degree of congestion in order to remedy the adverse externality caused by congestion distortion. Since a higher degree of increasing returns to an expansion in the variety of intermediate goods is found to intensify the congestion effect of government infrastructure expenditure, the optimal rule of government expenditure proposed by Barro (1990) should be modified.

Sectoral Composition of Government Spending and Macroeconomic (In)Stability

This paper examines the quantitative interrelations between sectoral composition of public spending and equilibrium (in)determinacy in a two-sector real business cycle model with positive productive externalities in investment. When government purchases of consumption and investment goods are set as constant fractions of their respective sectoral output, we show that the public-consumption share plays no role in the models local dynamics, and that a sufficiently high public-investment share can stabilize the economy against endogenous belief-driven cyclical aI uctuations. When each type of government spending is postulated as a constant proportion of the economyiI s total output, we find that there exists a trade-o§ between public consumption versus investment expenditures to yield saddle-path stability and equilibrium uniqueness.

TERRORIST THREATS AND TRANSITIONAL DYNAMICS IN AN OVERLAPPING GENERATIONS MODEL

This paper incorporates the nature of terrorist threats into the Yarri (1965)–Blanchard (1985) model and uses it to discuss the transitional dynamics of consumption in response to an anticipated terrorist attack. It is shown that if the terrorist attack is pre‐announced (and hence anticipated) and the public is fully informed, short‐term consumption may misadjust from its long‐term level. Before the terrorist attacks actually take place, households may be motivated to increase (rather than decrease) their consumption as a temporary response. This result may explain the temporary phenomenon of the increased consumption of certain types of goods in the period following September 11.