Rafael Doménech

Human Capital Inequality and Economic Growth: Some New Evidence

This paper provides new measures of human capital inequality for a broad panel of countries. Taking attainment levels from Barro and Lee (2001), we compute Gini coefficients and the distribution of education by quintiles for 108 countries over five-year intervals from 1960 to 2000. Using this new cross-country data on human capital inequality two main conclusions are obtained. First, most countries in the world have tended to reduce the inequality in human capital distribution. Second, human capital inequality measures provide more robust results than income inequality measures in the estimation of standard growth and investment equations.

Human Capital Inequality, Life Expectancy And Economic Growth*

This paper provides a theoretical model in which inequality affects per capita income when individuals decide to accumulate human capital depending on their life expectancy. The model assumes that life expectancy depends to a large extent on the environment in which individuals grow up, in particular, on the human capital of their parents. After calibrating the life expectancy function according to the international evidence for cross-section data, our results show the existence of multiple steady states depending on the initial distribution of education. In particular, human capital may converge towards different stable steady states. In accordance with the evidence displayed by many developing countries, the low steady state is a poverty trap in which children are raised in poor families, have a low life expectancy and work as non-educated workers all their lives.

The Stabilizing Role of Government Size

This paper presents an analysis of how alternative models of the business cycle can replicate the stylized fact that large governments are associated with less volatile economies. Our analysis shows that adding nominal rigidities and costs of capital adjustment to an otherwise standard RBC model can generate a negative correlation between government size and the volatility of output. However, in the model, we find that the stabilizing effect is only due to a composition effect and it is not present when we look at the volatility of private output. Given that empirically we also observe a negative correlation between government size and the volatility of consumption, we modify the model by introducing rule-of-thumb consumers. In this modified version of our initial model we observe that consumption volatility is also reduced when government size increases in similar way to the observed pattern in OECD economies over the last 45 years.

Some new results on interest rate rules in EMU and in the US

This paper offers two new results on interest rate rules. First, we show that the empirical evidence from 1970 onwards for the US is compatible with a Taylor rule when we consider the possibility of changes in the inflation target and in the real interest rate. Second, recursive estimates of a forward-looking version of the Taylor rule for EMU confirm an increasing weight for inflation in the area, possibly as a consequence of the EMS, and, furthermore, a convergence in the nineties to the German value observed for the whole period. This process has coincided with an important reduction in the deviation of inflation across EMU countries.

Macroeconomic performance and convergence in OECD countries

Abstract This paper investigates the robustness of the correlation between growth and a set of variables which comprises accumulation rates in human and physical capital and medium term macroeconomic indicators in OECD countries. We include these variables as additional regressors in the standard growth equation that comes from the human capital-augmented Solow model. Our results show that variables related to medium term macroeconomic performance affect both growth and convergence. In some periods these variables even outperform the explanatory power of the conventional growth variables such as the accumulation rates. Our results also suggest that it is difficult to analyse the contribution to growth of any particular macroeconomic indicator in an isolated way. Rather, these effects should be studied in a framework that accounts for the macroeconomic performance of a country.

Estimating Potential Output, Core Inflation, and the NAIRU as Latent Variables

This article proposes a new method to obtain estimates of the NAIRU, the core inflation rate, and the trend investment rate for the United States using an unobserved components model that is compatible with the usual decomposition of real gross domestic product into trend and cycle. The model includes Okuns law, a forward-looking Phillips curve, and an accelerator-type investment equation and accounts for some volatility breaks in two components. The unknown parameters in the model are estimated by maximum likelihood using a Kalman filter initialized with a partially diffuse prior, and the unobserved components are estimated using a smoothing algorithm. Our results show that the output gap is positively correlated with the deviations of the investment rate from its trend and the inflation rate from core inflation, and negatively correlated with the deviations of the unemployment rate from the NAIRU.

Fiscal flows in Europe: The redistributive effects of the EU budget

Fiscal Flows in Europe: The Redistributive Effects of the EU Budget. — In this paper we analyze the redistributive effects of the EU budget among European countries, exploring the relationship between income and fiscal flows, both in per capita terms. Using a new data set on EU budgets from 1986 to 1998, we find that the EU budget has a redistributive effect, though only on its expenditure side. The most redistributive expenditure category is the Regional Fund, followed by the Social Fund and by the guarantee section of the EAGGF. All of them have become increasingly redistributive in time. Total budgetary revenues show only proportionality with income. As regards the net financial balance, three groups of countries are identified, given the treatment they get from the EU budget that cannot be explained by their per capita income levels.ZusammenfassungFiskalische Ströme in Europa. Die Verteilungswirkungen des EU-Haushalts. — Die Verfasser analysieren die Verteilungswirkungen des EU-Budgets und untersuchen dabei die Beziehungen zwischen dem Einkommen der einzelnen LÄnder auf der einen Seite und fiskalischen Strömen zwischen den LÄndern und dem EU-Budget auf der anderen Seite (jeweils Pro-Kopf-Angaben). Sie benutzen neue Daten über die EU-Budgets von 1986 bis 1998 und zeigen, dass das EU-Budget eine Verteilungswirkung hat, allerdings nur auf seiner Ausgabenseite. Die Ausgabenkategorie mit der grö\ten Verteilungswirkung ist der Regionalfonds, gefolgt vom Sozialfonds und von der Abteilung Garantie des Ausgleichs- und Garantiefonds für die Landwirtschaft. Sie alle sind im Laufe der Zeit zunehmend redistributiv geworden. Die gesamten Budgeteinnahmen verhalten sich nur proportional zum Einkommen. Was die fiskalische Nettobilanz betrifft, werden drei LÄndergruppen identifiziert, je nach der Behandlung, die sie seitens des EU-Budgets erfahren, soweit diese nicht mit der Höhe ihrer Pro-Kopf-Einkommen erklÄrt werden kann.

The effects of budget deficit on national saving in the OECD

Abstract In this paper, we estimate a structural VAR using a panel of OECD countries, which includes national saving and budget deficit, both as the ratio to GDP, to test the Ricardian Equivalence hypothesis. In this framework, we separate saving and deficit movements into two types of shocks, associated with structural parameters of these economies. Our results suggest that Ricardian Equivalence did not work in our sample of OECD countries, since private saving compensated only a small fraction budget deficit. This supports the interpretation that the large budget deficits have been a very important factor behind the significant increase in real interest rates in the eighties and early nineties.

Projecting Pension Expenditures in Spain: On Uncertainty, Communication and Transparency

In this paper we suggest a set of indicators about the future performance of the Spanish public pension system and a suitable method of representing their uncertainty, in order to improve the communication to the public opinion about its main future challenges. Spain seems a particularly interesting case in Europe to illustrate our proposals, since the social security system has been in surplus for nine consecutive years, in sharp contrast to the projections made just a decade ago, but, at the same time, most projections foresee for Spain one of the highest increases in public expenditure among EU countries due to ageing. We argue that simple, transparent, credible, public and periodic indicators, which take explicitly into account the uncertainty about future demographic, economic and institutional developments, may contribute to improve the debate on the policies needed to strengthen the pension system.

Optimal Taxation and Public Expenditure in a Model of Endogenous Growth

This paper analyses the optimal choice of fiscal policy in a model where public spending enters the production and utility functions and can be financed using flat rate taxes on consumption and on capital and labor incomes. Within this framework we generalize some previous results in the literature. Our results show that the optimal tax structure involves positive values of all the tax rates, which depend on structural parameters and how the returns to public capital are appropriated by private factors. We also conclude that the correct allocation of public spending is more important for welfare than the choice of the tax structure.