Raymond G. Batina

On the Long Run Effects of Public Capital and Disaggregated Public Capital on Aggregate Output

We study the cointegration properties of data on aggregate output, five proxies for labor, two proxies for private capital, public capital, and disaggregated public capital for the United States for 1948–1993. We find evidence of multiple cointegrating vectors; we typically find three or four cointegrating vectors depending on which combination of proxies is evaluated. When public capital is disaggregated by type there is less evidence for cointegration. Finally, innovations in public capital have long lasting effects on output, labor, and private capital, and innovations to output, labor, and private capital also have long lasting effects on public capital.

On the long run effect of public capital on aggregate output: Estimation and sensitivity analysis

We undertake a sensitivity analysis of the productivity of public capital under the aggregate production function approach. Several proxies are used for the private inputs and for public capital, several dummy variables are included to adjust for energy price shocks, newly revised data is studied, and Stock and Watsons dynamic OLS estimator is used. Our main results are that the productivity of public capital depends critically on the proxies used, the effects are typically smaller than the early estimates, and omitting the oil price shocks introduces significant upward bias in the measured productivity of public capital.

On the interpretation of the modified samuelson rule for public goods in static models with heterogeneity

Abstract Pigou argued that use of distorting taxation would increase the social cost of a public good due to the excess burden created by a distorting tax system. Samuelsons rule governing a pure public good must then be modified. A second-best rule has appeared in the literature when heterogeneity exists and an interpretation for the various effects captured by the additional terms appearing in the rule has been given. We present a counterexample to the standard interpretation and provide an alternative derivation and interpretation which allows us to make a more precise distinction among the effects mentioned in the literature.

The consumption tax in the presence of altruistic cash and human capital bequests with endogenous fertility decisions

Abstract We provide an analysis of the consumption tax policy in the presence of cash bequests, human capital investments in children, and endogenous fertility decisions. It is shown that the consumption tax is no longer neutral if the tax rate is constant over the taxpayers life cycle, labor supply is exogenous, and the parent expects the offspring to pay the same tax rate, if the number of children is chosen optimally by the parent. Neutrality breaks down because the shadow prices of both bequests and fertility are interlinked; it is more expensive to produce a child the larger either bequest is and it is more expensive to make a bequest of either type to each child the larger the number of children produced. Several examples are provided where imposing the consumption tax induces an increase in the number of children produced and a decrease in net capital formation.

Labor and Capital Taxation with Public Inputs as Common Property

The services of many public inputs (e.g., dams, irrigation systems, and highways) are provided to private firms on a free-access basis. If these services enter constant-returns-to-scale production functions then there are decreasing returns to scale in the private factors. Thus a change in the amount of a public input gives rise to positive rent or economic profit in the first instance. The authors extend the literature by recognizing that this rent cannot be an equilibrium phenomenon. Private agents will engage in rent-seeking that will ultimately lead to dissipation. This makes a public input equivalent to a common property resource, which, in the absence of the appropriate price or quantity rationing, gives rise to inefficiency. Using a model with capital and labor as private inputs, the authors show it is optimal to tax capital even though a labor tax is available and capital is internationally mobile. Production efficiency also holds since our policy supports the first-best equilibrium despite decreasing returns to scale in private inputs.

Public goods and dynamic efficiency: The modified Samuelson rule

Abstract It is well known that the use of distorting taxes to finance a public good in a static economy may indirectly raise the social cost of the public good because of the deadweight loss associated with the tax system. However, the tax system may also affect the dynamic efficiency of the economy. We provide an example where the use of distorting taxes lowers the social cost of a public good in a steady state relative to the first-best case due to the effect of the governments tax policy on the dynamic efficiency of the economy.

Empirical Impact of Public Infrastructure on the Japanese Economy

We study the impact of public capital investment on individual sectors of the Japanese economy using time-series data for the period of 1970-1998. We employ a production function approach and also estimate a dynamic VAR/ECM model. We find significant differences in the employment effects, output effects and private investment effects across sectors. Public capital investment has a positive effect on employment in the finance, insurance and real estate (FIRE), manufacturing, construction and utilities sectors; on private investment in the FIRE, agriculture, transportation, trade and services sectors; and on output in the mining, FIRE, trade and manufacturing sectors.

The effects of social security in a life cycle family labor supply simulation model

Abstract We simulate a number of social security provisions in an overlapping generations model of family labor supply. The program causes both men and women to shift labor toward the beginning of the life cycle, increases the familys ratio of retirement consumption to consumption when young, and lowers both wage rates but does not substantially alter the male-female wage ratio. The wealth effects of the program appear to dominate the incentive effects. Our exhaustive sensitivity analysis reveals that our results are robust to changes in several key labor supply parameters, the intertemporal male and female own wage elasticities, and the cross wage elasticity.

A Differential Incidence Analysis of a Tax Reform From an Income Tax to a Consumption Tax in the Presence of Bequests

This article studies the properties of a switch from an income tax to a consumption tax in the presence of bequests. The author shows that the consumption tax will distort the bequest decision if bequests are taxed at the consumption tax rate but not when bequests are exempt. It is possible that including bequests in the tax base under the consumption tax may reduce the incentive to save. The main benefit from reforming the tax system may arise from the switch away from the income tax and not in the move toward the consumption tax if bequests are taxed.

International spillover effects of consumption taxation

Abstract This paper investigates the international spillover effects of a revenue-neutral increase in consumption taxes coupled with a reduction in wage taxes in a two-country open economy. Many economists feel that the consumption tax would be an improvement over the income tax. This paper provides counterexamples to the conventional wisdom. We show that conversion to a consumption tax may reduce capital accumulation and may transmit a negative externality to the rest of the countries in the world economy under certain conditions: endogenous labor supply and bequests.