Takeo Hori

Conformism and Structural Change

We study structural change in a simple, two-sector endogenous growth model and show that the presence of commodity-specific consumption externalities can be a source of structural change. When the degrees of consumption externalities are different between different goods, the two sectors grow at different rates, whereas the aggregate economy exhibits balanced growth in the sense that capital stock and expenditure grow at the same constant rate. Under the more restrictive condition such that the degrees of consumption externalities are the same, structural change does not occur. We also show that the dependence of the benchmark consumption levels on the past consumption is crucial for the divergent patterns of structural change across countries.

Dynamic analysis of reductions in public debt in an endogenous growth model with public capital

We construct an endogenous growth model that includes productive public capital and government debt. We assume that the government debt-to-GDP ratio is gradually adjusted to a target level, reflecting the permanent commitment rules in the Stability and Growth Pact or the Maastricht Treaty in the European Union (i.e., the well-known 60% rule). These rules affect government borrowing and public investment. Here, we examine the welfare implications of the permanent commitment rules. We find that fiscal consolidation based on the rules improves social welfare. Moreover, the improvement in welfare accelerates as fiscal consolidation progresses more rapidly. Last, we also discuss and derive the optimal long-run debt-to-GDP ratio.

Debt Policy and Economic Growth in a Small Open Economy Model with Productive Government Spending

In this paper, we examine the effects of introducing constraints on government borrowing using a continuous-time overlapping generations model of a small open economy. We consider government placing constraints on the amount of government bonds outstanding by establishing an upper limit, or target level, for the ratio of government bonds to gross domestic product. We first show that there exist multiple steady states in the model small open economy. One is a steady state with high growth, the other a steady state with low growth. We next examine how changes in the target level for bonds affect economic growth rates at the steady states. If the economy has a positive amount of asset holdings, we obtain the following results. When the government runs budget surpluses, an increase in the target level for government bonds reduces the growth rate of the low-growth economy, but raises the growth rate of the high-growth economy. However, when the government runs budget deficits, an increase in the target level for government bonds raises the growth rate of the low-growth economy, but reduces the growth rate of the high-growth economy. If the economy has a negative amount of asset holdings, the results are ambiguous.