Pawan Gopalakrishnan

Bio: Pawan Gopalakrishnan is an academic researcher from Reserve Bank of India. The author has contributed to research in topics: Economics & Factor income. The author has an hindex of 4, co-authored 11 publications receiving 33 citations. Previous affiliations of Pawan Gopalakrishnan include Indian Statistical Institute.

Fiscal policy in an emerging market business cycle model

Abstract: Emerging market economy business cycles are typically characterized by high consumption and output volatility, strongly counter-cyclical current accounts, and counter-cyclical real interest rates. Evidence from the wider EME and less developed economy business cycle experience suggests however that real interest rates can also be pro-cyclical. We reconcile the pro-cyclicality of real interest rates with the above facts by embedding fiscal policy into a standard emerging market business cycle model. We show that fiscal policy makes real interest rates a-cyclical or pro-cyclical. We use the model to replicate some of the key features of the Indian business cycle.

Fiscal Austerity in Emerging Market Economies

Abstract: We build a small open economy RBC model with financial frictions to analyze expansionary fiscal consolidations in emerging market economies (EMEs). We calibrate the model to India, which we view as a proto-typical EME. When factor income tax rates are low, a contractionary fiscal shock has an expansionary effect on output. The economy's debt/GDP ratio falls, and tax revenues rise. When factor income tax rates are high, a contractionary fiscal shock has an expansionary effect on output if government spending is valued sufficiently highly relative to private consumption by households in utility. We identify the mechanisms behind these results, and their implications for actual economies undertaking fiscal reforms.

Distortionary Taxes and Public Investment in a Model of Endogenous Investment Specific Technological Change

Abstract: 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.

Code and data files for "Fiscal Policy and Default Risk in Emerging Markets"

Abstract: All Matlab and C++ programs necessary to produce the results of the article. There is also a Excel spreadsheet with Mexican data.

How Local Economic Conditions Affect School Finances, Teacher Quality, and Student Achievement: Evidence from the Texas Shale Boom.

Abstract: Whether improved local economic conditions lead to better student outcomes is theoretically ambiguous and will depend on how schools use additional revenues and how students and teachers respond to rising private sector wages. The Texas boom in shale oil and gas drilling, with its large and localized effects on wages and the tax base, provides a unique opportunity to address this question that spans the areas of education, labor markets, and public finance. An empirical approach using variation in shale geology across school districts shows that the boom reduced test scores and student attendance, despite tripling the local tax base and creating a revenue windfall. Schools spent additional revenue on capital projects and debt service, but not on teachers. As the gap between teacher wages and private sector wages grew, so did teacher turnover and the percentage of inexperienced teachers, which helps explain the decline in student achievement. Changes in student composition did not account for the achievement decline but instead helped to moderate it. The findings illustrate the potential value of using revenue growth to retain teachers in times of rising private sector wages.

Entrepreneurial labor and capital taxation

Abstract: This paper considers a Ramsey model of linear taxation for an economy with capital and two kinds of labor. If the government cannot distinguish between the return from capital and the return from entrepreneurial labor, then there will be positive capital income taxation, even in the long run. This happens because the only way to tax entrepreneurial labor is by also taxing capital. Furthermore, under fairly general conditions, the optimal tax on observable labor income is higher than the capital tax, although both are strictly positive. Thus, even though both income taxes are positive, imposing uniform income taxation would lead to additional distortions in the economy.