Abstract Macroeconomic strategies and policies have differed significantly among Asian countries, and yet some common issues recur despite their immense diversity in inherited historical initial conditions, differences in political systems, geopolitical situations, location and size, and natural resource endowments. The chapter examines from a comparative perspective issues like unemployment, state versus market, domestic versus foreign market, degree of openness in trade, investment and finance, industrial and technology policy, decentralization, and economic and social inequality. While some countries have been more successful than others in dealing with these issues, our comparative perspective also shows development itself as a moving target, thus requiring flexible institutional and policy responses at each separate stage of development, which makes uniform guidelines misleadingly over-simplistic.
When economy grows, and residentâs needs are diversifying, finance starts to become decentralization of power as a result. The offer of the public service by the centralized government is suitable to unify the citizenâs preference of the wide area, but what the local government where inhabitants are the nearest carries is desirable for the offer of the community service in a small range(Oatesâs decentralization theorem). On the other hand, it becomes to cause the difference of various public services in each area in fiscal decentralization. Therefore, it is important how we measure progress of the financial decentralization in each area and the financial decentralization of power difference between each area. The purpose of this report analyzes economic and fiscal decentralization disparities in China from the measurement of the tile index based on the data of âthe Chinese statistics summary (2000 through 2007)â before and after the western great development, at the same time it analyzes whether the relation between economy and financial decentralization is correlative, in other words, Oatesâs decentralization theorem is concluded in Chinese economy. As a result of analysis, following three points were confirmed. 1. Expenditure decentralization disparities and difference of the district production per capita have positive correlation. Therefore, Oatesâs decentralization theorem may be concluded. 2. However, when I consider population movement, Fiscal empowerment disparities and difference of the district production per capita have negative correlation. As a result, when I consider the side political, Oatesâs decentralization theorem may not be concluded. 3. In the major cities of the coastal place such as Beijing and Shanghai, as for the growth rate of expenditure decentralization and the original expenditure decentralization, these coefficients of correlation were negative. Oatesâs decentralization theorem is not concluded in these cities, and it is predicted that a factor except the finance strongly works for economic growth.The conclusion whether or not Oatesâs decentralization theorem was concluded remains much more vague by the complicated political economic system in this way in China.
The objective of this paper is to examine whether the level of fiscal decentralization of a country is a relevant variable to explain public investment in innovation (measured as the share of research and development (R&D) spending in total government budget) and the intensity of basic research within the public R&D bundle. To assess the effects of decentralization, we present a theoretical model where a 'benevolent government' invests in R&D aiming at maximizing net income available in the country (central government) or in the respective region (subnational government), states compete to attract capital investment, and R&D results are subject to interregional knowledge spillovers. According to the model, decentralization leads to a lower share of basic research in government innovation spending. The impact on total R&D is ambiguous, although it tends to be negative. The conclusions of the model are tested through an empirical analysis using country aggregate data. Confirming the predictions of the model, we find evidence that expenditure decentralization leads to lower intensity of basic research within public R&D, and that both types of decentralization negatively affect the size of innovation spending. Our findings suggest that deepening fiscal decentralization should be considered along with measures to compensate for innovation spending decrease, and that the central government should play a greater role in financing or carrying out basic research.
Douglas McWilliams, Cristian Niculescu-Marcu, Beatriz das Neves Abreu Marques da Cruz
Long Finance's Distributed Futures research programme is pleased to announce the publication of the report, âThe Economic Impact Of Smart Ledgers On World Tradeâ, the latest in a series of exciting projects in the programme. The report, sponsored by the Cardano Foundation, came as a result of the the Worshipful Company of World Traders and the Distributed Futures' interest in quantifying the potential impact of Smart Ledger technology on international trade. Written by Douglas McWilliams, Cristian Niculescu-Marcu, and Beatriz Cruz from the Centre for Economics and Business Research (Cebr), it includes a Foreword by Michael Parsons FCA, Chairman of Cardano Foundation, and a Preface by Professor Michael Mainelli, Executive Chairman of Z/Yen Group.
The report features a description of the econometric approach that maps trade frictions that Smart Ledger technology might be able to offset, especially in the realm of non-tariff and bureaucratic barriers to trade. The authors draw the following conclusions:
Smart Ledger technology could boost world trade in goods by at least $35 billion dollars per annum.
The cost of importing a single container could, therefore, be reduced by around $46, by simplifying procedures.
These potential benefits are driven by a 2.5% cost claw-back assumption, supported by case studies on previous technological advancements in trade. One such case study is containerization, where the cost savings have been calculated to be in the range of 20%.
If reduced uncertainty is, also, taken into account, using option pricing theory, the potential gains become even larger, with a potential monthly net cost saving of $172 million (or, approximately, $2 billion per annum).
This would boost world GDP by $10 to $20 billion and could, potentially, add between 450,000 and 900,000 to the worldwide demand for labor, boosting wages and living standards worldwide. The World Bank estimates that 10.7% of the worldâs population still lives in extreme poverty, with an income below $1.90 a day (2011 prices).
The report also includes the results of a global survey of 247 contract and commercial managers, focusing on the respondents' awareness and use of Smart Ledgers, the importance they attach to various aspects, and the areas of âpainâ that could be relieved by the adoption of Smart Ledger technology. There are some truly insightful results.
Smart Ledgers are based on a combination of mutual distributed ledgers (multi-organisational databases with a super audit trail) with embedded programming and sensing, thus permitting semi-intelligent, autonomous transactions. Smart Ledgers are touted as a technology for fair play in a globalized world. There are numerous projects building trade systems using this technology with announcements from governments, shipping firms, large IT firms, and the like.
As Michael Mainelli wrote in his Preface to the report: Trade reaps economic benefits from specialization and comparative advantage, creates prosperity, distributes success and wealth, and collectively enriches all of our societies and communities. Hopefully, knowing the scale of relative benefits can help speed adoption of some boring technology â âmulti-organisational databases with a super audit trailâ - for the benefit of all of us.
Z/Yen and Long Finance would like to acknowledge the significant contribution of the Worshipful Company of World Traders, Cardano Foundation, IACCM, the City of London Corporation, and the Centre for Economics and Business Research.
Rents from natural resources can alter the relationship between central and local governments by providing a new source of government financing. We develop a model to explore the relationship between fiscal decentralization and resource abundance. Our model indicates that natural resource rents can detach central government expenditures from the tax base so that the central government can spend more to persuade a fractious periphery to remain under central government control. Thus, other things being equal, higher natural resource rents can result in less decentralized government expenditures. We empirically explore the relationship between fiscal decentralization and natural resource rents using a panel of 60 countries over the past 40 years. Empirical results support our economic model: A 1% increase in natural resource rents as a fraction of gross domestic product results in government expenditures that are 0.53% less decentralized.
This paper examines the impact of fiscal decentralization on both public investment in innovation (measured as the share of research and development - R&D - spending in total government budget) and on the intensity of basic research within the public R&D bundle. We present a theoretical model where a âbenevolent governmentâ invests in R&D aiming at maximizing net income available in the country (central government) or in the respective region (subnational government), where states compete to attract capital investment, and where R&D results are subject to interregional knowledge spillovers. The model predicts that decentralization leads to a lower level of public spending on innovation and to a lower share of basic research in government R&D budgets. The implications of the model are empirically tested utilizing country aggregate data. We find evidence that expenditure decentralization leads to lower intensity of basic research within public R&D and that both revenue and expenditure decentralization negatively affect the size of innovation spending. The findings suggest that fiscal decentralization policy, expected to be beneficial in many other dimensions, should be accompanied by measures to compensate for the otherwise decrease in innovation spending and that the assignment of expenditure responsibilities should have central government play a greater role in financing and carrying out basic research.
<strong>Abstract</strong><br> Many reforms have been undertaken in local governance after the collapse of the<br> totalitarian, centrist and bureaucratic regimes in Central and Eastern Europe. Albania<br> has demonstrated that decentralization is a major development tool. More than two<br> decades of decentralization activities have revealed that the decentralization process has<br> brought about changes in the operation of institutions and delivery of services, even<br> though this change has taken place gradually. Fiscal decentralization is one of the three<br> dimensions that characterize the decentralization process. Local finance issues are an<br> everyday topic in countries in transition and should be addressed by means of an approach<br> that favors consolidation of local autonomy. Local governments in Albania have lacked,<br> and continue to lack, the fiscal capacity to deliver on the promise of decentralization<br> to improve public services and to promote and nurture local economic development.<br> Decentralization can promote economic development and improve citizensâ welfare<br> and living standards when service delivery and the quality of the decisions over how<br> public resources are deployed are improved, but local governments remain hampered<br> by inadequate transfers from the central government and from restraints imposed on<br> various revenue-generating options. However, inadequate financial instruments,<br> especially those of intergovernmental transfers, have affected regional disparities. In this<br> paper, through comparative analysis, analyzing a part of the Region (Qark) of Lezhaâs<br> LGUs, economic development indicators, will approve the need for reform of these LGUsâ<br> financial instruments in order to narrow the gap of regional disparities in Albania.
This paper explains, first, that, since households disregard the impact in the aggregate of their fertility and education choices on the return to their own savings, the market does not implement the mix of population and skills that a planner internalizing all externalities from fertility and education would choose. It then shows that for an economy without capital over-accumulationâthe empirically relevant case, cf. Abel et al. (Rev Econ Stud 56(1):1â19, 1989)âa market supplying efficiency units of labor beyond the plannerâs level does so by leading households to go for quality over quantity in their reproductive choicesâover-investing in education and depressing fertility with respect to the plannerâs levelsâa feature reminiscent of reproductive patterns in developed economies. It is finally shown that a pension scheme contingent to the householdâs fertility and education investment decentralizes the plannerâs allocation as an equilibrium outcome. Such pension scheme is financed through a tax on the increase in labor income that results from households education investment. Interestingly enough, the usual tax-financed compulsory education does not decentralize the plannerâs allocation, even when the mandatory level of education is the plannerâs, since it does not address the misalignment of incentives at the heart of the problem.
The paper focuses on the complex dialectics between endogenous and exogenous components of local and territorial economic development, emphasizing the idea of the particular consistency of internal growth factors and the importance, in this context, of financial means for activating the endogenous potential in the case of Romania. The county was considered as statistical observation unit for the period of analysis 2007-2013 and the data were disaggregated on bank loans, FDI, research and development expenditures, European structural and cohesion funds, local budgets expenditures. It was found that the more developed counties have better chances to achieve higher performances of endogenous development. The study highlighted the need of a policy mix that would support the development of counties with a relatively low development level, actually most of them, under the circumstances of a polycentric regional development. An optimal combination between top-down and bottom-up interventions may prove to be the most successful, offering an effective compatibility of decentralization with the coordination and monitoring requirements, supporting the smart specialization at county level, not excluding spillover effects at community and national levels.
Despite the predominance of liberal ideology in the United States since its formation as an independent nation, the US has consistently expanded its capacity to finance and support the efforts of the private sector to create and commercialize new technologies in strategic sectors. As such, this study aims to identify and describe the characteristics of interventions by the American state to foster economic development. It also seeks to analyze how these characteristics fit within the different typologies of the Developmental State. A case study was conducted on the nanotechnology sector in the US, complemented by mini case studies on the computation, semiconductor, and biotechnology sectors. The empirical findings were compared to the ideal types of the Regulatory State, the Developmental Bureaucratic State, and the Developmental Network State. These ideal types were constructed using the Weberian model using concepts from the literature pertaining to the Developmental State. This study concludes that the American Developmental State has adopted a model that is closely related to the Developmental Network State, acting in a fragmented and decentralized manner, dedicated to promoting collaboration and joint action with the private sector. This is in line with the triple helix model (industry, academia, and government) with the intention of fostering development and growth of high-technology sectors, which are considered economically, scientifically, or militarily strategic. Furthermore, the State also carries out various actions designed to facilitate transforming technological innovations into commercialized products, with the idea of ensuring the country's scientific and technological leadership, its international competitiveness, the vitality of its domestic industry, and the dynamism of the national economy.
This thesis is entitled âFiscal policy and economic growth in the presence of intergenerational transfersâ. It is composed of four self-contained chapters and focusses on the growth and welfare effects of taxation and public spending. The common denominator of all four chapters is that they incorporate an endogenous growth process in an overlapping generations model to evaluate long-term policy implications when different generations are affected in different ways by fiscal policy. In the first and second chapter the implications of capital income taxation for the growth process are discussed. The analysis emphasizes the role of public and private intergenerational transfers in form of public pensions and bequests as well as intergenerational redistribution induced by public policies. Among other results, it turns out that the presence or absence of such transfers critically determines whether an increase of capital income taxes with additional revenue being devoted to cut wage taxes may enhance economic growth. In the third chapter, the focus of the analysis is on social security funding and its implications for economic growth. Whereas a pay-as-you-go pension scheme, as considered in chapter one, naturally includes intergenerational transfers from the current working generation to retirees, a fully funded social security system does not. Still, the presence of such transfers within the economy in form of private educational spending and bequests turns out to play a key role in deter- mining the impact of funded social security on economic growth. More specif- ically, it is shown that a funded pension scheme may harm growth if there are operative bequests within the family, and parents thus face a trade-off between educating their children and leaving bequests. By contrast, when bequests are inoperative, the Ricardian equivalence holds and an increase in forced savings is exactly offset by a reduction in private savings leaving capital accumulation and educational spending unchanged. Chapter four discusses the impact of fiscal decentralization on economic growth in the context of education funding. While the traditional theoretical literature on fiscal decentralization focusses mainly on efficiency issues, empirical evidence for a positive relationship between fiscal decentralization and economic growth turns out to be mixed. Some studies can confirm the positive impact of higher degrees of decentralization on economic growth, whereas others face difficulties in establishing a positive relationship and, in fact, obtain either no dependency or a negative one. The aim of the fourth chapter is therefore to further evaluate the theoretical linkage and, at the same time, to give an ex- planation for the discrepancy between the empirical literature. The analysis reveals that there exists a growth maximizing degree of fiscal decentralization. Furthermore, it is shown that some degree of fiscal decentralization is always superior (in terms of long-run growth and welfare) to a system where either local or central governments exclusively finance educational investments.
From an analitycal historical perspective, this paper deals with the important public finance issue of decentralizing the governmentâs economic activities and functions into distinct branches, respectively devoted to collecting taxes and to allocating a given budget to different public goods. We start with the so-called Italian tradition in public finance and go on to the crucial contributions from James Pigou, Paul Samuelson and Richard Musgrave, up till the modern second best and optimal taxation approaches. Starting from the Italian tradition is meaningful as this stream of literature has given important pioneristic contributions to this topic, namely by Maffeo Pantaleoni and Enrico Barone. However, it is in developing the relationships of these contributions with the modern second best optimal taxation approach that we may find rigorous solutions to the main emerging problems of the issue.
ABSTRACT
This study aims to determine how important the public sector, through their spending, influences the growth rates of GDP (Gross Domestic Product) in the municipalities of Rio de Janeiro. Studies in this line are justified by the growth of the powers of sub-national levels of government, or fiscal decentralization. The base case relates to the decentralization more efficient provision of public goods, a fact allowed by the proximity between demand and supply of public goods. The results suggest that the public sector does not interfere with GDP growth in the cities of Rio de Janeiro. The investments were the largest category with its own momentum of economic growth and a model that included the occurrence of elections as an explanatory variable showed that election lawsuits not only affect the level of GDP, but also how it is affected by public spending.
Key words
Public Finance; development; cities.
Classificacao JEL: O23.
Artigo recebido em out. 2009 e aceito para publicacao em dez. 2010.
Decentralization will increase economic efficiency because local government are better positioned than the national government to deliver public services as a result of information advantages (Oates' Decentralization Theorem). Consequently, it was thought that decentralized finance would appear to have a potentially useful role to play in economic development (Oates [1993]). From the empirical viewpoint, however, it remains controversial whether there is any relationship between decentralization and economic growth. For example, as pointed out by Ebel and Yilmaz [2002] and Iimi [2005], it has been argued that fiscal decentralization can serve as a means to promote economic growth. On the other hand, there is some empirical evidence that fiscal decentralization is negatively associated with economic growth (e.g., Davoodi and Zou [1998], Zhang and Zou [1998]). Various reasons can be given for the differences in empirical estimations. In particular, the selection of fiscal decentralization variables is thought to be a cause of differences. A widely accepted measure of fiscal decentralization is the subnational share of total government spending. However, this is an imperfect measure of fiscal decentralization because it does not identify the degree of local expenditure autonomy. Ebel and Yilmaz [2002] defined the degree of local expenditure autonomy as the share of subnational own-revenues in total revenues. Though this indicator might capture subnational autonomy, it is difficult to represent the empowerment of people and communities through fiscal decentralization. However, it is important to be able to define fiscal decentralization as the empowerment of people and the community through fiscal empowerment of their local government. People and the community must be able to direct their subnational government officials to use their financial resources in accordance with local needs and preferences (Bahl [2005]). Boex and Simatupang [2008] develop a measure of fiscal empowerment to quantify fiscal decentralization as the gain in empowerment due to the devolution of fiscal power. However, this study does not examine the relationship between fiscal decentralization and economic growth. This paper sets the stage for a renewed effort to compute alternative measures of decentralization that take into account the degree of subnational autonomy and the empowerment of people and the community, and examines how fiscal decentralization viewed in terms of the empowerment of people and the community can affect economic growth.
We construct a model of endogenous investment specific techological change in which the stock of public capital influences the real price of capital goods. We show that the growth and welfare maximizing tax rates coincide in the planned economy. When factor income taxes finance public investment infintely many tax-subsidy combinations can decentralize the planner's allocations. The optimal capital income tax can be positive in this environment. We then augment the model to incorporate administrative costs. A unique combination of factor income taxes now decentralizes the planner's allocations. A simple calibration exercise suggests that changes in factor income taxes does not cause a significant change in the optimal growth rate or welfare. Our framework broadens the environment in which investment specific technological change occurs, and characterizes the role of optimal factor income taxation in raising long run growth and welfare.
In OLG economies with life-cycle saving and exogenous growth, competitive equilibria in general
fail to achieve optimality because individuals accumulate amounts of physical capital that differ from the one that maximizes welfare along a balanced growth path (the Golden Rule). With human capital, a second potential source of departure from optimality arises, related to education decisions. We propose to recover the Golden Rule of physical and also human capital accumu-
lation. We characterize the optimal policy to decentralize the Golden Rule balanced growth path
when there are no constraints for individuals to finance their education investments, and show that
it involves education taxes. Also, when the government subsidizes the repayment of education
loans, optimal pensions are positive
Aleksander Berentsen, Mariana Rojas Breu, Shouyong Shi
Many countries simultaneously suffer from high inflation, low growth and poorly developed financial sectors. In this paper, we integrate a microfounded model of money and finance into a model of endogenous growth to examine the effects of inflation on welfare, growth and the size of the financial sector. A novel feature is that the innovation sector is decentralized. Financial intermediaries arise endogenously to provide liquidity to this sector. Consistent with the data but in contrast to previous work, reducing inflation generates large growth gains. These large gains cannot be easily reproduced by imposing a cash-in-advance constraint in the innovation sector.
This paper studies the effects of stock market valuation on research investment, the rate of innovation, and welfare. In the presence of financing constraints for R&D investment, episodes of high market valuation can ease these constraints and raise the economy-wide investment in R&D and the rate of innovation. If the decentralized equilibrium rate of innovation is inefficiently low, then such episodes may lead to an increase in aggregate welfare even if the higher valuation is not entirely justified by fundamentals. We present a Schumpeterian-style growth model with a costly financial intermediation process to characterize the relationship between market value, entry of new firms, and the aggregate rate of innovation. We use the model to measure the welfare consequences of a stock market run-up that may only partly be justified by fundamentals. In particular, we apply the model to the US economy in the 1990s and calibrate the impact of the NASDAQ boom on the rate of innovation, growth and welfare. The welfare effect depends on the underlying change in fundamentals. We find that with an acceleration in US trend productivity growth from a pre-1995 rate of 1.4% to a rate of 2.0% per annum, the NASDAQ boom will have resulted in a net welfare gain of 0.55%. If the new growth rate is as high as 3%, the net gain was 1.35% of the present discounted value of consumption.
This paper develops a twoâperiod overlapping generations model with heterogeneous agents aiming at analysing how decentralization in the provision of public education affects growth and personal inequality via human capital investment. Education is financed by a tax levied by either national or local authorities. The tax rate is chosen according to a median voter mechanism. During their working period of life, individuals look after their offspring by providing them with a high level of school education stemming from taxation. In addition parent's contributions to the social security system provide them with retirement income. Heterogeneity accounts for the differences in the optimal taxation mechanism, linking the income distribution to the tax rate, and hence to human capital accumulation, growth and income inequality. In this way we relate differences among agents to the tax rate. We show that decentralization induces growth rate disparities among local communities but it can be ruled out by a proper fiscal substitution between social security and locally provided education. Unlike in the literature, this type of fiscal design allows local economies to grow faster and more equally than the national design.
ABSTRACT Cross-country studies of education and economic prosperity often reach conflicting results when using growth rates as the measure of economic development. However, growth rates lack persistence over time and may not accurately measure long-term economic success over relatively short economic horizons. To overcome this potential specification problem, we estimate the relationship between key education variables and the capital to physical labor ratio. Using both cross-sectional and panel specifications, we find that both the primary-pupilâteacher ratio and decentralized education finance are associated with a larger capital to physical labor ratio. The relationship between human capital and expenditures, private education, and test scores are less robust.
Open access
Fiscal Policy and Economic Growth
Intergenerational and Educational Inequality Studies