We study a multisector model of growth with differences in TFP growth rates across sectors and derive sufficient conditions for the coexistence of structural change, characterized by sectoral labor reallocation and balanced aggregate growth. The conditions are weak restrictions on the utility and production functions. Along the balanced growth path, labor employed in the production of consumption goods gradually moves to the sector with the lowest TFP growth rate, until in the limit it is the only sector with nontrivial employment of this kind. The employment shares of intermediate and capital goods remain constant during the reallocation process.

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Structural change in a multi-sector model of growth

This paper reviews the empirical literature on the impact of company taxes on the allocation of foreign direct investment. We make the outcomes of 25 empirical studies comparable by computing the tax rate elasticity under a uniform definition. The mean value of the tax rate elasticity in the literature is around -3.3, i.e. a 1%-point reduction in the host-country tax rate raises foreign direct investment in that country by 3.3%. There exists substantial variation across studies, however. By performing a meta analysis, the paper aims to explain this variation by the differences in characteristics of the underlying studies. Systematic differences between studies are found with respect to the type of foreign capital data used, and the type of tax rates adopted. We find no systematic differences in the responsiveness of investors from tax credit countries and tax exemption countries.

Taxation and Foreign Direct Investment: A Synthesis of Empirical Research

: This article provides an overview of both theoretical and empirical literature on the link between public investment (capital) and economic growth (national income). We first survey the channels through which public capital can conceivably affect growth. We then turn to reviewing the existing empirical literature, and we conclude that although not all studies find a growth-enhancing effect of public capital, there is now more consensus than in the past that public capital furthers economic growth. However, the impact reported by recent studies is not as big as some earlier studies suggested. We conclude with an overview of what is known about the optimality of public capital stocks.

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Public Capital and Economic Growth: A Critical Survey

Objective. —To compare the health care utilization, expenditure, quality of care, and satisfaction since 1980 of enrollees in managed care and indemnity plans. Data Sources and Study Selection. —Studies selected met the following criteria: data from 1980 forward, private insurance or Medicare enrollees, a comparison group, a reasonable attempt at statistical adjustment for noncomparable managed care and indemnity plan enrollees, and peer-reviewed findings (with two exceptions). Few studies on preferred provider organization plan performance met the selection criteria. Data Synthesis. —Compared with indemnity plans, health maintenance organization plans had somewhat lower hospital admission rates, 1% to 20% shorter hospital length of stay, the same or more physician office visits per enrollee, less use of expensive procedures and tests, greater use of preventive services, mixed results on outcomes, and somewhat lower enrollee satisfaction with services but higher satisfaction with costs. The evidence does not support the hypothesis that prepaid group practice or staff model health maintenance organizations are more effective than individual practice association or network model health maintenance organizations. Conclusions. —Although this literature analysis found several clear patterns of results, several factors, including unmeasured selection bias, diverse and rapidly changing health plans and local market conditions, and relatively few research results, suggest that generalizations must be made with caution. ( JAMA . 1994;271:1512-1519)

Managed care plan performance since 1980. A literature analysis.

Introduction References and Suggested Readings PART I REAL DYNAMIC MACROECONOMIC MODELS 1. Dynamic Programming A General Intertemporal Problem A Recursive Problem Bellman's Equations Nonstochastic Examples The Optimal Linear Regulator Problem Stochastic Control Problems Examples of Stochastic Control Problems The Stochastic Linear Optimal Regulator Problem Dynamic Programming and Lucas's Critique Dynamic Games and the Time Inconsistency Phenomenon Conclusions Exercises References and Suggested Readings 2. Search Nonnegative Random Variables Stigler's Model of Search Sequential Search for the Lowest Price Mean-Preserving Spreads Increases in Risk and the Reservation Price Intertemporal Job Search Waiting Times Firing Jovanovic's Matching Model Conclusions Exercises References and Suggested Readings 3. Asset Prices and Consumption Hall's Random Walk Theory of Consumption The Random Walk Theory of Stock Prices Lucas's Model of Asset Prices Mehra and Prescott's Finite-State Version of Lucas's Model Asset Pricing More Generally The Modigliani-Miller Theorem Government Debt and the Ricardian Proposition Remarks on Testing and Estimation Conclusions Exercises References and Suggested Readings PART II MONETARY ECONOMICS AND GOVERNMENT FINANCE 4. Currency in the Utility Function The Price of Inconvertible Government Currency in Lucas's Tree Model Issues and Models in Monetary Economics Government Debt in the Utility Function Government Currency in the Utility Function Seignorage and the Optimum Quantity of Currency A Neutrality Proposition Conclusions References and Suggested Readings 5. Cash-in-Advance Models A One-Country Model Fisher Equations Inflation-Indexed Government Debt Interactions of Monetary and Fiscal Policies Interest on Reserves A Two-Country Model Exchange Rate Indeterminacy Conclusions Exercises References and Suggested Readings 6. Credit and Currency with Long-Lived Agents The Physical Setup Optimal Allocations Competitive Equilibrium A Digression on the Balances of Trade and Payments The Ricardian Doctrine about Taxes and Government Debt The Model with Valued Currency and No Private Debt An Interventionist Optimal Monetary Equilibrium Townsend's \"Turnpike\" Interpretation Conclusions Exercises References and Suggested Readings 7. Credit and Currency with Overlapping Generations The Overlapping-Generations Model The Ricardian Doctrine about Taxes and Government Debt Again A Ricardian Proposition Currency, Bonds, and Open-Market Operations Computing Equilibria Interpretations as Currency Equilibria Optimality Four Examples on Inflation and Its Causes Seignorage and the Laffer Curve Dynamics of Seignorage Forced Saving International Exchange Rates Conclusions Exercises References and Suggested Readings 8. Government Finance in Stochastic Overlapping-Generations Models The Economy Some Examples A General Irrelevance Theorem Wallace's Modigliani-Miller Theorem for Open-Market Operations Chamley and Polemarchakis's Neutrality Theorem Interpretation as a Constant Fiscal Policy Indexed Government Bonds A Ricardian Proposition Further Irrelevance Theorems Conclusions Exercises References and Suggested Readings Appendix. Functional Analysis for Macroeconomics Metric Spaces and Operators First-Order Linear Difference Equations A Formula of Hansen and Sargent A Quadratic Optimization Problem in R A Discounted Quadratic Optimization Problem Predicting a Geometric Distributed Lead of a Stochastic Process Discounted Dynamic Programming A Search Problem Exercises References and Suggested Readings Index

Dynamic Macroeconomic Theory

This paper investigates the impact of tax policy on foreign direct investment flows between the US and other countries using a panel data empirical approach. Using panel data is an attractive alternative to using single time series data because it provides greater statistical power and offers greater flexibility in terms of explanatory variables. This study finds many significant factors influencing the transfer of funds component of foreign direct investment. Most noteworthy is that, in addition to host and home country corporate tax rates having a significant effect on investment flows, the host and home country income tax rates are also significant.

The link between tax rates and foreign direct investment

A normative analysis of short-term public capital investment is carried out using cost benefit analysis. This cost benefit approach explicitly incorporates the durability of capital into the computation and thus include an aspect of public capital omitted from previous studies which focus on productivity. Estimation methods used else where have been improved by properly handling several concerns that have been raised. In addition, this behavioural model yields many structural equations suitable for estimation which results in highly efficient parameter estimates. Although a small elasticity is found for public capital, the benefit is greater than the cost.

A normative analysis of public capital

https://www.clevelandfed.org/~/media/content/newsroom and events/publications/working papers/1995/wp 9509 optimal fiscal policy public capital and the productivity slowdown pdf.pdf

Optimal fiscal policy, public capital, and the productivity slowdown

I. INTRODUCTION Recently, the debate concerning fundamental U.S. tax reform has led to a number of proposals that involve a shift toward a consumption-based system. (1) One such proposal is the so-called flat tax of Hall and Rabushka (1995). The flat tax would apply a single tax rate to all labor income above a given threshold and to all capital income after fully expensing investment expenditures. Hall and Rabushka (1995) argue that the adoption of their proposal would provide an enormous boost to the U.S. economy by dramatically improving incentives to engage in productive activities and would save taxpayers hundreds of billions of dollars in compliance and administration costs. (2) In this article, we develop a quantitative general equilibrium model to assess the growth effects of adopting a flat tax plan similar to the one proposed by Hall and Rabushka (1995). The model captures many of the features of the current U.S. tax code, such as graduated personal tax rates, a standard personal deduction, separate tax rates applied to personal and business income, double taxation of business income, and differential tax treatment of physical and human capital. Under appropriate parameter settings, the model can exhibit either endogenous or exogenous long-run growth. Our choice of functional forms facilitates a closed-form solution to the model. This allows us to characterize explicitly the economy's transition path following the reform. A central issue in the debate over fundamental tax reform is the effect that such a reform would have on economic growth. The present analysis builds on the work of Stokey and Rebelo (1995), who use an endogenous growth framework to identify the key model features and parameters that are important for determining the quantitative impacts of distortionary taxes on long-run growth. (3) Our study differs from theirs and the bulk of the dynamic tax literature in one fundamental respect. Here we evaluate the growth effects of shifting from a graduatedrate tax system to a flat-rate system. Stokey and Rebelo (1995) consider only flat-rate systems in which the marginal tax rate is equal to the average tax rate. We approximate the graduated-rate tax system in the U.S. economy by an empirical tax rate function that allows the personal tax rate to depend positively on household taxable income. In equilibrium, household decisions are influenced by both the level and slope of the tax schedule. To implement the flat tax reform, we shift the parameters of the tax rate function to flatten the marginal tax schedule while maintaining revenue neutrality. Our methodology treats the Hall-Rabushka proposal as one that in effect moves a representative household from one tax rate schedule to another. We view this setup as a reasonable approximation to gauge the growth effects of tax reform at the macro level. A more elaborate setup would of course allow for household heterogeneity at a given point in time. In this regard, we note that Caucutt et al. (2003) have recently examined the growth effects of graduated-rate taxes in a two-period overlapping generations model that includes both skilled and unskilled agents. In their model, a flatter tax schedule increases the fraction of skilled agents in the economy. The share of total output devoted to education rises accordingly and the economy's long-run growth rate is observed to increase. The quantitative implications of their model are difficult to compare to ours, however, because their two-period framework implies a very long time horizon between household decisions (about 30 years). Moreover, their model abstracts from many of the features of the U.S. tax code that we include here. In addition to examining the consequences of flattening the marginal tax schedule, we investigate the growth effects attributable to other parts of the flat tax proposal, such as allowing full investment expensing, eliminating the double taxation of business income, and increasing the standard personal deduction. …

Growth Effects of Shifting from a Graduated‐rate Tax System to a Flat Tax

The effect of health-plan membership on the utilization of health-care services is of interest to both consumers and policymakers. Often estimation of that effect is difficult because data are nonexperimental and the dependent variable exhibits a high proportion of zeros. The authors propose a model of utilization that addresses both problems. After controlling for chronic illness and other observed variables, they find no evidence of further selectivity bias in equations for physician contacts and inpatient days. The authors' estimates of the effect of health-plan membership on utilization of services are similar to those from experimental data. Coauthors are Roger Feldman, Steven Cassou, and Michael Finch. Copyright 1991 by MIT Press.

Steven P. Cassou

Papers

The link between tax rates and foreign direct investment

A normative analysis of public capital

Optimal fiscal policy, public capital, and the productivity slowdown

Growth Effects of Shifting from a Graduated‐rate Tax System to a Flat Tax

Health Plan Choice and the Utilization of Health Care Services