Showing papers on "Capital deepening published in 1979"

Capital Gains versus Current Income in the Farming Sector

Abstract: years since the Great Depression, mainly because of rising farm real estate prices. After 1970, annual increases in asset values have each year exceeded annual net farm income (including landlords' net rent), often by wide margins. This paper examines the magnitude and causes of asset appreciation. It first notes that asset appreciation should be adjusted for general price inflation before it is compared with income. The comparable series, known as real capital gains, has been roughly equal to net farm income during this decade. Next, the primary origin of these significant real capital gains is traced to the fact that, contrary to the popular impression, the current return to farm assets has grown rapidly over the past twenty-five years, even when measured in constant dollars. It is then shown that, according to asset-pricing theory, a farm economy characterized by rapid growth in the real current return to assets will tend to experience large annual real capital gains and a low rate of current return to assets-which corresponds to actual experience in most years since the mid-1950s. This inescapable tendency has serious and paradoxical implications for the structure of agriculture and for farm policy, which are briefly sketched in the concluding remarks.

Social Security and Equilibrium Capital Intensity

Abstract: I. The theory of social security and life cycle savings, 234.—II. Social security and the steady state capital stock in a life cycle economy, 237.—III. Partial equilibrium effect, 239.—IV. General equilibrium changes in capital intensity, 241.—V. Alternative specifications and some macro issues, 247.—VI. Summary and conclusion, 248.—Appendix A, 249.—Appendix B, 251.

Social Security, the Supply of Labor, and Capital Accumulation

Abstract: The Social Security system has played an important role in the economic life of American families. It not only provides security for the elderly, but is a device for automatic stabilization, a method of income redistribution, as well as an important factor affecting capital accumulation and the supply of labor. The purpose of this paper is to analyze the long-run effects of the Social Security system in a growing economy. The model employed here extends and generalizes the neoclassical life cycle growth models of Peter A. Diamond and Paul A. Samuelson by explicitly allowing for an endogenous retirement decision and bequest motive. I consider an economy in which the population grows at a constant rate. Each individual lives for two periods. In the first period, he works full time, earning an income of w and paying a Social Security tax of T. In the second period, he works a fraction of time and then retires, receiving from the government a pension of z. He is to choose a consumption path, a retirement age, and an amount of bequest so as to maximize his lifetime utility. From these individual decisions and the assumption that the government budget is balanced each period, we derive the aggregate capital and labor supply functions and analyze the effects of changes in Social Security on capital accumulation and the equilibrium wage and interest rates. The present model is similar to that of Martin S. Feldstein in that retirement decisions are assumed endogenous. The main difference is that his is a partial equilibrium analysis while the model presented here is a general equilibrium model capable of analyzing long-run effects. I show that the short-run effects of Social Security depend primarily on the elasticities of the demand and supply of labor, and its long-run effects are influenced as well by the elasticities of savings and bequest. It is further shown that an appropriate Social Security system can increase the long-run well-being of the economy by causing the rate of return on capital to converge to the Golden Rule level. If, however, the tax and pension levels are tied to the individual workingretirement decisions, the system causes distortions in the labor market. Because of this distortional effect, the optimal Social Security does not necessarily lead to the Golden Rule.

Stocks and depreciation of human capital: new evidence from a present‐value perspective

Abstract: Responding to a perceived growing interest in human wealth estimates, this paper offers a framework for measuring the aggregate stock of human capital and then implements the procedure for the United States male population age 14 to 75. Unlike previous estimates of human wealth that are based upon historical or resource costs, these estimates measure the capital stock as the discounted resent-value of expected lifetime returns. In the estimation, returns are equated with earnings data from the 1970 U.S. Census 15 percent Public Use Sample for out-of-school males, adjusted for employment and survival probabilities, adjusted for an assumed exogenous growth in future earnings, and discounted at 7.5 percent. We provide cross-sectional estimates of individual stocks of human capital by age and educational attainment, as well as expected lifetime wealth profiles for individuals by level of education. These individual profiles can be used to obtain direct estimates of age-specific depreciation which suggest human capital is subject to significant and prolonged appreciation before nearly straight-line depreciation begins around middle age. This finding is all the more significant since resource-cost estimates of human capital which must assume a depreciation pattern to obtain stocks have always imposed a much faster rate much sooner. Finally, an aggregate estimate of the stock of human capital for all males is supplied and its sensitivity to the choice of the discount rate, tax laws, and expected exogenous growth is analyzed. This seemingly-conservative stock estimate is then compared to a much lower resource-cost estimate offered recently by John Kendrick. A discount rate over 20 percent would be needed to equate the two measures. In trying to reconcile the two figures, we raise some new questions about the validity of both approaches for human capital accounting.

Issues in the analysis of capital formation and productivity growth

Abstract: New measures are used to estimate the magnitude of the slowdown in labor productivity growth and are compared in several ways to analyze recent trends Using the private business sector (nonfarm and nonresidential), the author substitutes different measures of real output and capital and labor input than are used in analyses by Norsworthy, Harper, and Kunze He finds two areas in which the choice of data seems to make a difference; (1) acceleration of employment during 1965-1973 may have reduced the capital intensity of production, and (2) it is possible that physical depreciation of capital stock and deceleration of capital input may be overstated in the period since 1973 5 references, 3 tables (DCK)

Energy prices and capital formation: 1972--1977

Abstract: Connections are drawn between the energy price increases of 1973--74 and the slow business investment pace following the recession of 1974--75. The incentive for firms to invest theoretically diminishes with higher energy prices. The implications this theory has for energy prices relative to the productivity of existing capital and labor resources and to the slowing of aggregate investment are examined as evidence. The analysis indicates that the adjustments made to the nine percent drop in capital/labor ratio represents a change in the trend growth and that these effects will continue to affect capital formation.

Capital Immobility, Adjustment Costs, and the Theoretical Foundations of Income-Expenditure Models

Abstract: This paper reexamines traditional macrotheoretical questions in models that fully integrate conditions of production into the structure. The relative price of capital and consumer goods and the real rate of interest are required to equal the technical rates of transformation. Capital stocks are immobile between sectors, and increasing marginal costs of introducing new capital goods into the production process are assumed. Given plausible values of the parameters, standard fiscal policies may not change aggregate demand in the directions predicted by the IS-LM approach. And to judge what outcome is most likely requires considerable information about an economy's structure of production.

Capital Inflow, Saving, and Economic Growth

Abstract: In Part II, we analysed the various factors explaining the fast rate of growth in the economies of this study. Specifically, we have examined such supply factors as technical progress, scale economies, factor inputs, capital-labour substitution, and such demand factors as the growth in exports. In Part III, we will examine some other elements of economic growth. In this chapter, we shall look at the relationships between savings and growth, in the following the relationship between income distribution and growth. The part played by saving and income distribution poses an identification problem when their relationships with growth are being studied. This is because it is often difficult, if not impossible, to ascertain the direction of causation when relating growth to such economic variables. It can be argued, on the one hand, that saving and the pattern of income distribution are crucial factors affecting the rate of growth. On the other hand, it is equally plausible that the rate of growth to a greater or lesser extent affects the rate of saving and the pattern of income distribution.

Capital Deepening Response and Heterogeneity of Capital Goods

Abstract: Capital deepening is one of the most important concepts in capital theory. In a steady state economy with one kind of capital good, a capital deepening response is defined as the case in which the per worker capital good stock is a decreasing function of the own rate of interest. In terms of the usual aggregated neo-classical technology f(k) [Product (capital-labor ratio)], this definition is exemplified; the marginal condition "f'(k)=rental/product price" and the rate of return condition "the own rate of interest r+rate of depreciation 8=f'(k)" lead to the fact that dk/ldr = 1 /f"(k). This capital deepeninlg riesponse is related to the so-called no-par adoxical consumption behavior. When the long-run balance relation is imposed so as to maintain k constanit witlh a conistanit rate of populationi growth q, the mailntainiable per capita consumption level is designated by,f (k) (g + 5)k = c. Here c is made a function of r and we obtaiin dc/dr = [f'(k) (g + 35)] (dk/dr) = [r g] ( (llf "(k)).2 So far so good as long as the economy is of the aggregated neo-classical type. There is left, however, the questioni of defining the concept of capital deepening response when we are confronted with a disaggregated economy witlh many heterogeneous capital goods. A slightly generalized definition has been made available by the Cambridge approach,3 in which a capital deepening response is defined in terms of the change in the value of per worker capital goods stock. This definition has an advantage of maintaining parallelism between the aggregated economy and the disaggregated economy, but it is not suited for clarifying the correspondence between the capital deepening response and the no-paradoxical consumption behavior in a muLltisectoral economy. Burmeister and Dobell [1970] and BuLrmeister and TuLrniovsky [1972] proposed an alternative definition which is not only consistent with the conventional concept of capital deepening in the one capital good world, but also intimately related to the phenomenon of no-paradoxical consumption behavior. Their definition is

The Leontief paradox in a multi-country setting: Comments

Abstract: Apart from the commodity mix effect, exports, imports consumption and production respond identically to changes in relative capital endowment, regardless of whether one refers to physical capital, human capital or total capital. Hence, when allowing technology and product mix to vary, one cannot distinguish between export goods and import goods in terms of capital intensity. These conclusions are still in agreement with Hirsch [1977, p. 418] who argues “Poor countries export low capital-intensive and import high capital-intensive goods, while rich countries import low capital-intensive and export high capital-intensive goods.” The only response that is significantly different is due to the commodity mix effect.