Showing papers on "Physical capital published in 1993"

Optimal Taxation in Models of Endogenous Growth

Abstract: We study the problem of optimal taxation in three infinite-horizon, representative-agent endogenous growth models. The first model is a convex model in which physical and human capital are perfectly symmetric. Our second model incorporates elastic labor supply through a Lucas-style technology. Analysis of these two models points out the danger of assuming that government expenditures are exogenous. In our third model, we include government expenditures as a productive input in capital formation, showing that the limiting tax rate on capital is no longer zero. In numerical simulations, we find similar effects on growth and welfare in all three models.

Explaining saving-investment correlations

Abstract: National saving and investment rates are highly positively correlated in virtually all countries. This is puzzling, as it apparently implies a low degree of international capital mobility. This paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital. The model is consistent with the fact that saving-investment correlations are larger for larger countries but are still substantial for small countries. Further, the model is consistent with the finding that current-account deficits tend to be associated with investment booms. Copyright 1993 by American Economic Association.

Capital Formation and Economic Growth in China

Abstract: First, production functions are estimated for China's aggregate economy and for the five sectors—agriculture, industry, construction, transportation, and commerce—using annual data (some constructed by the author) from 1952 to 1980. Then, this paper measures the contribution of capital formation to the growth of these sectors, the effects of the Great Leap Forward of 1958–1962 and of the Cultural Revolution of 1966–1976 on outputs, the impact of economic reforms since 1979 on growth, the rates of return to capital, and the effects of sectorial growths on relative prices.

Transitional Dynamics in Two-Sector Models of Endogenous Growth

Abstract: The steady state and transitional dynamics of two-sector models of endogenous growth are analyzed in this paper We describe necessary conditions for endogenous growth The conditions allow us to reduce the dynamics of the solution to a system with one state-like and two control-like variables We analyze the determinants of the long run growth rate We use the Time-Elimination Method to analyze the transitional dynamics of the models We find that there are transitions in real time if the point-in-time production possibility frontier is strictly concave which occurs for example if the two production functions are different or if there are decreasing point-in-time returns in any of the sectors We also show that if the models have a transition in real time the models are globally saddle path stable We find that the wealth or consumption smoothing effect tends to dominate the substitution or real wage effect so that the transition from relatively low levels of physical capital is carried over through high work effort rather than high savings We develop some empirical implications We show that the models predict conditional convergence in that in a cross section the growth rate is predicted to be negatively related to initial income but only after some measure of human capital is held constant Thus the models are consistent with existing empirical cross country evidence (authors)

Decomposing Learning by Doing in New Plants

Abstract: The paper examines learning by doing in the context of a production function in which the other arguments are labor, human capital, physical capital, and vintage as a proxy for embodied technical c...

On Endogenous Growth with Physical and Human Capital

Abstract: This paper presents a class of models in which agents may devote part of their nonleisure activities to going to school so as to increase the efficiency units of labor they supply to the firms and the wages they receive. The interaction among the technology of human capital accumulation and agents' preferences will determine endogenously the economy's rate of growth. Given a constant returns to scale technology for physical capital accumulation, we characterize the set of steady states as a ray from the origin and show the global convergence of every off-balanced path to some point on this ray. Further properties concerning the dynamic evolution of the state and control variables around the ray of steady states are also established. Our analysis is useful to understand the role played by the technologies of physical and human capital in the process of accumulation and to evaluate the impact of policies geared toward attaining higher levels of capital. Our results highlight the importance of human capital ...

The Trade-off Between Environmental Care and Long-term Growth — Pollution in Three Prototype Growth Models

Abstract: The effects of increased environmental care on optimal technology choice and long-term growth are studied for an economy in which pollution is a side-product of physical capital used in production. First, it is shown that in case of a standard neoclassical production structure, the result is a less capital-intensive production process whereas the long-run growth rate is not affected. Next, we introduce assumptions of the endogenous growth literature. When there are constant returns to physical capital, an increase in abatement activities crowds out investment and lowers the endogenous growth rate. When human capital accumulation is the engine of growth, physical capital intensity declines and the endogenous optimal growth rate is unaffected by increased environmental care or is even higher, depending on whether or not pollution influences agents' ability to learn.

On the Optimal Taxation of Capital Income

Abstract: One of the best known results in modern public finance is the Chamley-Judd result showing that the optimal tax rate on capital income is zero in the long-run. In this paper, we reexamine this result by analyzing a series of generalizations of the Chamley-Judd formulation. We show that in a model with human capital, if the tax code is sufficiently rich and there are no pure profits from accumulating human capital, then all distorting taxes are zero in the long-run under the optimal plan. In this sense, income from physical capital is not special. To gain a better understanding of these two conditions, we study examples in which they are not satisfied and show that the optimal tax rate on income from physical capital does not go to zero. In those cases where the limiting tax rate is non-zero, we calculate its value for alternative specifications of the marginal welfare cost of taxation. Our results indicate that even for conservative specifications, tax rates of 10% and higher are possible under the optimal code.

Estimation of the Depreciation Rate of Physical and R&D Capital in the U.S. Total Manufacturing Sector

Abstract: Numerous studies on production and cost, the sources of productivity and studies on endogenous growth have recognized the pivotal role of the physical capital stock. Also there is a clear recognition by economists and policy makers that knowledge capital approximated by R&D capital is crucial for productivity growth and the transformation of the industrial structure of an economy. Critical to these contributions of physical and R&D capital is the measurement of the stocks of physical and R&D capital, which in turn requires measuring their depreciation rates. In this paper we have specified a model of factor demand that allows for estimating the depreciation rate of both physical and R&D capital jointly with the other model parameters. The model was estimated for the U.S. total manufacturing sector. Our estimate for the depreciation rate of physical capital is 0.059 and that for R&D capital is 0.12. Only gross investment data are needed to estimate the model parameters and the depreciation rates, and to generate consistent series for the stocks of physical and R&D capital.

The Effect of Taxation on Human Capital

Abstract: This study finds a significant negative effect of proportional income taxation on human capital. Of the few earlier studies to address this issue, most suggested a negligible effect of taxation on investment in human capital. This earlier conclusion is shown to be incorrect by using a model that is more general in several respects than the models used previously.

Still searching for optimal capital structure

Abstract: The optimal balance between debt and equity financing has been a central issue in corporate finance ever since Modigliani and Miller (1958) showed that capital structure was irrelevant. Thirty years later their analysis is textbook fare, not in itself controversial. Yet in practice it seems that financial leverage matters more than ever. I hardly need document the aggressive use of debt in the market for corporate control, especially in leveraged buyouts, hostile takeovers, and restructurings. The notorious growth of the junk bond market means by definition that firms have aggressively levered up. In aggregate there appears to be a steady trend to more debt and less equity. Of course none of these developments disproves Modigliani and Miller’s irrelevance theorem, which is just a "no magic in leverage" proof for a taxless, frictionless world. Their practical message is this: if there is an optimal capital structure, it should reflect taxes or some specifically identified market imperfections. Thus, managers are often viewed as trading off the tax savings from debt financing against costs of financial distress, specifically the agency costs generated by issuing risky debt and the deadweight costs of possible liquidation or reorganization. I call this the "static trade-off" theory of optimal capital structure. My purpose here is to see whether this or competing theories of optimal capital structure can explain actual behavior and current events in financial markets, particularly the aggressive use of debt in leveraged buyouts, takeovers, and restructurings. I will consider the static trade-

The Economic Importance of Human Capital in Modernization.

Abstract: The full effects of human capital are difficult to observe. In addition to the internal effects which enhance the productivity of the individual in whom the investment has been made, there exist external effects—in particular the creation of new knowledge—which may have a large impact on economic growth. Since human capital invents new forms of physical capital, the former is the key to economic progress. Unlike physical capital, however, property rights in human capital—patents, copyrights, workplace safety rights—have often not been strong enough to encourage the most enterprising use of human capital resources.

Public Capital and Total Factor Productivity

Abstract: This paper examines the impact of the stock of public capital on output levels and productivity growth rates in the United States. The analysis is based on the estimation of parameters in a translog profit function. Prices of intermediate goods are introduced into a quasiproduction function for value-added. Recently developed econometric techniques for dealing with nonstationary time series are used in the estimation. The authors find that the services of public capital are an important part of the production process and that about 40 percent of the productivity decline is explained by a fall in the public capital-labor ratio. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Do private capital markets insure regional risk? Evidence from the United States and Europe

Abstract: A striking feature of international economic relations is the limited extent of intertemporal trade and risk-sharing among nations. This paper uses data on consumption, income, and production from regions of the United States to address the question of whether the limited participation of national economies in international capital markets is a fundamental aspect of economic relations among large geographic regions, or whether it is specifically an artifact of international economic relations. We conclude that capital flows among the regions of the United States are significantly larger than those across countries. However, such private markets still provide a relatively limited degree of insurance against regional fluctuations.

Toward improved accounting for the environment.

Abstract: Accounting for wealth and income is important. Individuals as well as nations wish to measure their capital stock and in particular their sustainable income which they may consume without living beyond their means and drawing down their assets. There are various kinds of capital: man-made, natural/environmental, and various forms of social capital. Most national accounting in the past has focused on the man-made capital. To be able to properly maintain it, one needs to be aware of and compute a capital consumption (or depreciation) allowance. This allowance is subtracted from a nation's gross domestic product (GDP) to arrive at a nation's net domestic product (NDP). If one only considers man-made capital, the NDP so computed is sustainable in the sense that one can consume that amount while maintaining the capital stock intact, which forms the basis for future production and income. The author deals with the question of how to better account for natural capital in an integrated way within the usual economic accounting framework. He describes the progress that has been made in recent years in conceptualizing and operationalizing the proposed approaches and measures. The author has made an important contribution to this topic in collaboration with the United Nations Statistical Agency (UNSTAT). The publication's goal is to be able to measure environmentally sustainable income.

The Determinants Of Capital Structure: Some UK Evidence

Abstract: In this study we attempt to explain the cross-sectional variation in the capital structures of non-financial UK companies using proxy variables for characteristics suggested by capital structure theories. We find that non-debt tax shields, asset structure, size and past profitability are related to capital structure in the manner suggested by theory. Earnings volatility is found to be positively related to leverage. This finding, though counter intuitive, is consistent with the hypothesis of Myers (1977) that risky firms may borrow more than safer ones. In addition, we find evidence that capital structures vary across industrial classification.

Studies in human capital

Abstract: Part 1 Human capital and earnings: investment in human capital and personal income distribution the distribution of labour incomes human capital and earnings. Part 2 Human capital, wage growth, labour turnover and unemployment: on the job training - costs, returns and some implications labour mobility and wages wage changes in job changes education and unemployment job training, wage growth and labour turnover job training - costs, returns and wage profiles. Part 2 Technology and the demand for human capital: human capital and economic growth wage structures and labour turnover in the United States and Japan human capital responses to technological change in the labour market human capital, technology and the wage structure.

Venture Capital Formation, Investment, and Regional Industrialization

Abstract: Venture capital is an important element of regional capital formation, technological innovation and regional industrialization. While neoclassical economic theory assumes perfectly free capital markets, geographers have long noted the spatial dimensions of finance and investment. This paper introduces metropolitan-level data on venture capital and develops statistical models for both the location of venture capital (supply) and the spatial distribution of investment (demand). The findings suggest that venture capital is characterized by: (1) high degrees of capital mobility operating through a well-defined spatial structure, (2) investment flows to the areas of greatest opportunity and return on investment, and (3) the development of specialized sources of venture capital supply around both established financial centers and centers of high-technology industry. Geographic proximity is required to reduce uncertainty, compensate for ambiguous information, and minimize investment risk. Investment poo...

Externalities and Dynamics in Models of "Learning or Doing"

Abstract: This paper analyzes the dynamics of general equilibrium models with externalities in human capital accumulation which extends that of Uzawa-Lucas Multiple balanced growth paths, with different growth rates, and a continuum of equilibria (with a unique balanced growth path) may exist In general, endowment shocks can be followed by higher or lower growth rates A simple necessary and sufficient condition which depends only on the physical production technology, is established for a positive impact of physical capital on productivity growth Under the same condition, a sudden removal of capital income taxation lowers welfare Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

Public Investment and Economic Growth

Abstract: Past analyses of the effects of government nondefense capital spending on the private economy have focused on public investment in physical capital such as roads, bridges and plant and equipment rather than on public investment in human capital. By contrast, government spending on education and labor training, both of which enhance human capital, are here found to have statistically (and numerically) significant correlations with the future growth of real private GDP. Other types of government spending are found to have weaker (or no) correlations with private GDP growth.

Cyclical productivity and the workweek of capital

Abstract: Standard specifications of the production function assume that an increase in labor given the stock of physical capital will reduce the capital-labor ratio. Since the stock of physical capital is quasi-fixed, the elasticity of output with respect to labor should be less than 1 as long as there are constant returns to scale. However, empirical studies of productivity typically find short-run increasing returns to labor. But the effective stock of capital should not be regarded as fixed if, when labor increases, it goes onto a previously inoperative shift. Labor that works the late shift will have at least as much capital as labor working days. Hence, for increases in labor that are accompanied by increases in the workweek of capital, there is no presumption of diminishing marginal product of labor. This paper describes briefly a data set that provides a direct measure of the workweek of capital and then investigates its role in cyclical productivity. It finds that much of the apparent cyclicality of total factor productivity is accounted for by variation in the workweek of capital.

Is All Government Capital Productive

Abstract: The early 1970s witnessed dramatic change in per-capita output and labor-productivity growth rates in the United States. These growth rates averaged 2.2 percent and 2.0 percent, respectively, for the 1950–1969 period compared to 1.3 percent and 0.8 percent for the 1970–1989 period. Aschauer (1989) advances the idea that an important explanatory factor in this productivity slowdown is the government’s stock of capital. Estimating a production function that relates private sector output to private sector labor and capital and to total government capital for the aggregate U.S. economy (1949– 1985), Aschauer finds the output elasticity of government capital to be 0.39. 1 That is, for every 1 percent change in government capital, output responds by 0.39 percent. This productivity coefficient, coupled with the sharp fall in the average growth rate of government capital from 4.1 percent for 1950–1970 to 1.6 percent for 1971–1985, constitutes the evidence underlying Aschauer’s view. 2 The Aschauer (1989) study is innovative and important. His evidence suggests that government capital plays a significant role in economic growth. His findings are, however, surprising and somewhat unconvincing. The evidence is surprising because the output elasticity of government capital is relatively high and because government capital contains many different types of stocks (e.g., museums, hospitals, airports, prisons, seawalls, and wildlife preservation The author, an economist at the Federal Reserve Bank of Richmond, thanks William Cullison, Tom Humphrey, Peter Ireland, Stacey Schreft, and Dawn Spinozza for helpful suggestions and comments and Karen Myers for processing the article. Also, the author gratefully acknowledges use of the GMM package written by Lars Hansen, John Heaton, and Masao Ogaki. The analysis and conclusions are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Richmond or the Federal Reserve System.

Recent estimates of capital flight

Abstract: Researchers and policymakers have in recent years paid considerable attention to the phenomenon of capital flight. Researchers have focused on four questions: What concept should be used to measure capital flight? What figure for capital flight will emerge, using this measure? Can the occurrence and magnitude of capital flight be explained by certain (economic) variables? What policy changes can be useful to reverse capital flight? The authors focus strictly on presenting estimates of capital flight using a number of alternative methodologies. In their discussion of these methodologies, they show that although the approaches to measuring capital flight differ, the identities used in balance of payment data make them close in final measurement. In particular, the so-called World Bank residual and Dooley methods - presented in the past as very different approaches to measuring capital flight - actually produce similar measurements. The authors discuss the data used for calculating capital flight and the adjustment that must be made. They present aggregate capital flight figures using the various measures for 84 developing countries. The figures show a pattern of increasing capital flight until 1988, followed by a return of flight capital between 1989 and 1991. The authors present regional aggregates of capital flight and rank countries and regions by the level of capital flight relative to GDP. They find that capital flight is more widespread than commonly assumed and, relative to GDP, is rather evenly distributed. The capital flight-GDP Lorenz curve is above the 45-degree line, indicating that countries with a smaller GDP have more capital flight than one would expect if it were distributed proportionate to GDP.