Private Spending Research Articles

Private debt overhang and the government spending multiplier: Evidence for the United States

SummaryUsing state‐dependent local projections and historical US data, we find that government spending multipliers are considerably larger in periods of private debt overhang. In particular, while multipliers are below or close to one in low private debt states, we find significant crowding‐in of private spending in periods of debt overhang, resulting in multipliers that are much larger than one. In high private debt episodes, more government purchases even reduce the ratio of government debt to gross domestic product. These results are robust for the type of shocks, and when we control for the business cycle, financial crises, deleveraging episodes, government debt overhang, and the zero‐lower‐bound.

Crowd‐Out or Affordability? The Lifeline Expansion's Effect on Wireless Service Spending

AbstractPublic subsidization of private goods often leads to crowd‐out, reducing private spending. This effect is intended for a policy such as the 2008 Lifeline phone subsidy expansion, which aimed to increase affordable access to services. I examine the effects of this policy on households’ self‐reported wireless phone service spending in the Consumer Expenditure Survey. Using state‐level variation in policy implementation and triple‐differences event study methods, I estimate that the expansion reduced households’ wireless service spending by more than 100 percent of subsidy payments. I document that the expansion led to a separate, competitive market for providers catering to low‐income households. Consequently, higher‐quality subsidized services crowded out lower‐quality unsubsidized options, saving households more than an equivalent cash transfer. This highlights how market segmentation and competition can magnify a targeted subsidy's impact.

The case for welfare state universalism, or the lasting relevance of the paradox of redistribution

In 1998, Walter Korpi and Joakim Palme proposed a political and institutional explanation to account for the greater redistributive success of welfare states that relied more on universal than on targeted programmes. Effective redistribution, they argued, resulted less from a Robin Hood logic – taking from the rich to give to the poor – than from a broad and egalitarian provision of services and transfers. Hence, the paradox: a country obtained more redistribution when it took from all to give to all than when it sought to take from the rich to help the poor. Recent studies, however, failed to confirm the existence of this paradox. This article suggests that the original argument was theoretically sound but inadequately operationalized. Korpi and Palme measured universalism indirectly, not by the design or character of social programmes, but rather by their outcomes, namely, by their income effects. These outcomes, however, are influenced by exogenous factors. We use two new Organisation for Economic Co-operation and Development (OECD) indicators to capture universalism directly, through the institutional design of social programmes: (1) the percentage of social benefits that are means or income tested and (2) the proportion of private spending in total social expenditures. These two indicators are combined into a universalism index and tested with a time-series cross-sectional design for 20 OECD countries between 2000 and 2011. This approach, we argue, better captures institutional design, in a way that is consistent with Korpi and Palme’s original argument, and it suggests that there is still a paradox of redistribution in the 21st-century welfare state.

Fighting Hunger Things that Really Matter

Ending hunger by 2030 is a global commitment. The Global Hunger Index (GHI) Report 2017 tells us there is still a long way to go. After every such report there is a flurry of activity advocating more state intervention into micro issues. While these are well intentioned, a question arises – are we missing the bigger picture? Are we spreading too far, too thin while neglecting what really matters? This paper investigates cross-country evidence to identify factors important in reducing hunger and provides policy recommendations. We find that economic prosperity still remains our biggest guarantee. Any state intervention has an opportunity cost of slowing growth which should be considered too. At the same time, however, trickle-down effect of growth alone isn’t the best way. Growth coupled with providing infrastructure has maximum impact. This is followed by urbanization, open defecation free communities and reducing corruption. Lastly, government spending in primary healthcare and education matters more than private spending. Next we evaluate Indian state-wise data and establish that these findings, in addition to women’s education, hold in Indian context too.

Patterns, Trends and Policy Implications of Private Spending on Skills Development in Mexico and the United States

This paper explores families’ investment in skills development through education in a high-inequality, low-educationquality country such as Mexico, comparing it to a lower-inequality, higher-quality education country such as theUnited States. The paper uses a series of Household Income and Expenditure Surveys for both countries spanningaround 20 years and different methodological approaches. Of particular interest is the analysis of educationexpenditure patterns along the income distribution. Policy implications for both cases are discussed. While in Mexicostimulating private spending in education through public resources might be regressive, the contrary might be thecase in the United States.

The Opportunity Costs of the Alaska Permanent Fund Dividend

<p><em>The Alaska Permanent Fund was established by the State of Alaska in 1976 to save a portion of windfall revenues resulting from the discovery of the large Prudhoe Bay oil field. The Permanent Fund Dividend program, established in 1982, pays out about half the earnings of the Fund to each resident. The dividend was intended to both create a constituency for sound management of the Fund, and directly distribute the State’s resource wealth to its citizens. The dividend has achieved great popularity, and has succeeded in allocating resource rents to boost jobs and personal income, and reduce poverty, while the Fund itself has grown. It has also protected the Fund from frivolous practices. But other sovereign wealth funds without dividends have also prospered. There have been trade-offs associated with the dividend, some of which have become more obvious with the Alaska economy grappling with the impact of chronic low oil prices. These include foregone earnings, political complexity, income inequality, and the question of public vs. private spending.</em><strong></strong></p>

Crowding out or crowding in? Correlations of spending components within and across countries

Using data for a sample of advanced and developing countries, the paper studies variation in the transmission of shocks from public and private components of spending to the macro-economy and distinguishes between the effects of expansionary and contractionary shocks. The aim is to study the extent by which capacity and propagation channels would reinforce or mitigate the cyclical responses of macroeconomic variables to expansionary and contractionary shocks to private and public components of spending. Further, the evidence will spell out the extent of co-movement in the variables’ adjustments to the specific shock across the macro economy. The bulk of the time-series evidence indicates more pervasive effects on growth in connection to private consumption across advanced countries. In contrast, the growth effects of public consumption are more pervasive across developing countries. Across the two groups, the growth impact of public consumption is more pronounced, compared to that of public investment. Further, the inflationary effects are pronounced with respect to public and private spending shocks. In general, the limited statistically significant real time-series evidence attests to conflicting channels with respect to variables’ adjustments to one shock and inadequate co-movement in the transmission mechanism of various public and private spending shocks in many countries.

Uwarunkowania pomiaru efektywności finansowania edukacji – zarys problemu

Due to the significance and benefits of education for individual participants and communities (both in the local and global dimension), state authorities commit themselves to full or partial public funding, which does not exclude private spending. The key issue for the economics of education is to analyse the efficiency of education funding by defining a relationship between effects and expenditures. This paper outlines the problems of measuring the efficiency of education funding (from public funds in particular) based on a critical literature review and the results of the author’s previous analysis. The author presents an original concept of research into the efficiency of education funding (intended direction, scope, hypotheses and methods), announcing a series of publications about the conditions for its measurement.

A T-Shirt Model of Savings, Debt, and Private Spending: Lessons for the Euro Area

Notwithstanding the modified ECB practice that saved the day, the euro area is failing to restore economic prosperity. The problem is visibly political, yet an effective solution must be economically viable. This essay articulates the reason behind the prolonged deflationary bias of euro area policies by means of a simple (“T-shirt”) model where private spending depends on desired savings and sustainable indebtedness. This savings-debt constraint means that any policy that inhibits debt also inhibits financial savings, spending, and jobs. After providing a solution to the conundrum of the consequence of savings in a monetary economy, this essay makes a case for reclaiming the fiscal instrument. The EU Commission’s belief that it is possible to create jobs without creating new debt underscores a serious conceptual fault and a delusion that the savings-debt constraint to spending can be ignored. As long as policy-makers defy the savings-debt constraint the euro area will continue to live dangerously.

Steuerpolitik und Wirtschaftswachstum

The design of the tax system matters for economic growth. During times of economic crisis, tax instruments such as temporary tax cuts can be used to soften adverse effects on the economy by stimulating private and corporate spending. However, empirical evidence suggests that the overall impact of short term tax policies is limited. In the long run, the structure of the tax system is essential to building up an investment friendly and innovation-stimulating environment, which will promote sustainable economic growth.

Poor Relations: Connecting Waste, Need, And Health SpendingPoverty And The Myths Of Health Care Reform By Cooper Richard “Buz” Baltimore (MD) : Johns Hopkins University Press , 2016 304 pp., $35.00

Poor Relations: Connecting Waste, Need, And Health SpendingPoverty And The Myths Of Health Care Reform By Cooper Richard “Buz” Baltimore (MD) : Johns Hopkins University Press , 2016 304 pp., $35.00

What has happened to Sub-Regional Public Sector Efficiency in England since the Crisis?

This paper estimates public sector service efficiency in England at the sub-regional level, studying changes post crisis during the large fiscal consolidation effort. It finds that despite the overall spending cut (and some caveats owing to data availability), efficiency broadly improved across sectors, particularly in education. However, quality adjustments and other factors could have contributed (e.g., sector and technology-induced reforms). It also finds that sub-regions with the weakest initial levels of efficiency converged the most post crisis. These sub-regional changes in public sector efficiency are associated with changes in labor productivity. Finally, the paper finds that regional disparities in the productivity of public services have narrowed, especially in the education and health sectors, with education attainment, population density, private spending on high school education and class size being to be the most important factors explaining sub-regional variation since 2003.

What Has Happened to Sub-Regional Public Sector Efficiency in England Since the Crisis?

This paper estimates public sector service efficiency in England at the sub-regional level, studying changes post crisis during the large fiscal consolidation effort. It finds that despite the overall spending cut (and some caveats owing to data availability), efficiency broadly improved across sectors, particularly in education. However, quality adjustments and other factors could have contributed (e.g., sector and technology-induced reforms). It also finds that sub-regions with the weakest initial levels of efficiency converged the most post crisis. These sub-regional changes in public sector efficiency are associated with changes in labor productivity. Finally, the paper finds that regional disparities in the productivity of public services have narrowed, especially in the education and health sectors, with education attainment, population density, private spending on high school education and class size being to be the most important factors explaining sub-regional variation since 2003.

Evaluating Changes in the Transmission Mechanism of Government Spending Shocks

We empirically revisit the crowding-in effect of government spending on private consumption based on rolling windows of U.S. data. Results show that in earlier samples government spending is increasingly crowding in private consumption; however, this relation is reverted in the latest periods. We propose a model embedding non-separable public and private consumption in the utility function and rule-of-thumb consumers to assess the sources of non-monotonic changes in the transmission of the shock. The iterative full information estimation of the model reveals that changes in the co-movement between private and public spending is primarily driven by the fluctuations in the elasticity of substitution between private and public consumption, the share of financially constrained consumers, and the elasticity of intertemporal substitution.

Evaluating Changes in the Transmission Mechanism of Government Spending Shocks

Abstract We empirically revisit the crowding-in effect of government spending on private consumption based on rolling windows of U.S. data. Results show that in earlier samples government spending is increasingly crowding in private consumption; however, this relation is reverted in the latest periods. We propose a model embedding non-separable public and private consumption in the utility function and rule-of-thumb consumers to assess the sources of non-monotonic changes in the transmission of the shock. The iterative full information estimation of the model reveals that changes in the co-movement between private and public spending is primarily driven by the fluctuations in the elasticity of substitution between private and public consumption, the share of financially constrained consumers, and the elasticity of intertemporal substitution.

GOVERNMENT EFFECTIVENESS IN CONTROLLING CORRUPTION: WHAT’S NEW?

1.IntroductionEconomics is an effective tool for the investigation of corruption. Societies vary in the manner they construe and convey egocentricity. Endemic corruption implies a persistent deficiency (Fabre, 2017) in tapping egotism for well-founded and productive aims. The exemplary case for the social value of egotism is the conventional competitive market where self-centeredness is transposed into productive undertakings (Popescu and Ciurlau, 2016) that generate efficient resource utilization. The vilest case is war, i.e. a pernicious conflict over prosperity that culminates in devastating the resource base that activated the dispute originally. Public sector corruption weakens developmental and distributional objectives and is incompatible with democratic and republican values. (Rose-Ackerman and Palifka, 2016)2.The Institutional Economics of Public Sector Reform and CorruptionAn anemic or oppressive state stimulates corruption: the degree of corruption makes reform problematic and subverts public confidence in government entities, generating a chain reaction. A significant degree of corruption signals that something is wrong (Ionescu, 2016a) with the state's core entities and determinants, indicating a commitment to structural reform. Assessment should clarify how corruption functions in certain domains and to determine how it weakens public policies. Reform schemes may buckle down corruption where it has the most unfavorable consequences and where marginal benefits are significant relative to marginal expenses. Corruption takes place at the junction of situation-specific determinants, society-wide entities, and personal ethics. The consequences of corruption impact governmental cohesion and the cogency of government spending. In appraising regulatory corruption, the essential parameters are the features of the legal regime (Nica, 2016a) and the strength of the bureaucracy. An economy may be maintained in a corruption stratagem where corruption intensifies and hinders proper business investment. Corruption confines growth and suppresses confidence in government, whereas low growth and skepticism of the state invigorate and substantiate corruption. On the contrary, low corruption facilitates growth, and significant growth generates a societal demand (Popescu et al., 2016) to curtail corruption even further. Corruption may give rise to disorganizations and imbalances, being inferior to legally constituted payment schemes. Reforms may cut down the determinants for bribery and raise the risks of involving in corruption, the objective being an enhancement in the long-term efficiency, integrity, and validity of the state. The price mechanism may, as bribery, destabilize the authority and performance of government. (Rose-Ackerman and Palifka, 2016)3.The Impact of Corruption onthe Link between Government Spending and Economic GrowthCorruption is likely to generate lower growth, hindering both private and government investment spending (Nica, 2016b), and curbing the performance of public services. Government investment spending improves economic growth, substantial military burdens and present (non-capital) government spending decreases Gross Domestic Product (GDP) growth, and corruption has a detrimental effect. Enabling corruption makes the adverse consequence of military burden on the growth rate more relevant, indicating that fighting corruption tends to directly raise aggregate economic performance (Popescu et al., 2017) and have an indirect impact of diminishing the detrimental effect of military burden. …

Healthcare Financing in Bangladesh: Challenges and Recommendations

Bangladesh has achieved remarkable success in improving most of the health indicators over the last couple of decades despite pervasive economic poverty. However, for a sustainable growth health sector should be among the top lists at Government’s policy table. Unfortunately, the recent trend in budget allocation portrayed just the opposite and is concerning as expressed by health experts. Over the last seven fiscal years, budgetary allocation for health dropped from 6.2% to 4.3% of total government expenditure. Due to insufficient public spending, out of pocket payment (OPP) is much higher which is about two-third (64.7%) of total health care spending in Bangladesh. Inadequate and inefficient public healthcare and profiteering tendency of the private healthcare sector are two major factors behind such high private spending. Suffering from a massive shortage of health workforce and with such low public funding it would be very difficult for Bangladesh to fight against upcoming challenges like increasing burden of non communicable diseases (NCDs) and emerging threats due to climate change.Bangladesh Journal of Medical Science Vol.15(4) 2016 p.505-510

Green versus brown: Comparing the employment impacts of energy efficiency, renewable energy, and fossil fuels using an input-output model

Global carbon emissions have reached unsustainable levels, and transforming the energy sector by increasing efficiency and use of renewables is one of the primary strategies to reduce emissions. Policy makers need to understand both the environmental and economic impacts of fiscal and regulatory policies regarding the energy sector. Transitioning to lower-carbon energy will entail a contraction of the fossil fuel sector, along with a loss of jobs. An important question is whether clean energy will create more jobs than will be lost in fossil fuels. This article presents a method of using Input-Output (I-O) tables to create “synthetic” industries – namely clean energy industries that do not currently exist in I-O tables. This approach allows researchers to evaluate public and private spending in clean energy and compare it to the effects of spending on fossil fuels. Here we focus on employment impacts in the short-to-medium term, and leave aside the long-term comparison of operations and maintenance employment. We find that on average, 2.65 full-time-equivalent (FTE) jobs are created from $1 million spending in fossil fuels, while that same amount of spending would create 7.49 or 7.72 FTE jobs in renewables or energy efficiency. Thus each $1 million shifted from brown to green energy will create a net increase of 5 jobs.

The Gathering Storm still looms

A decade on, the situation portrayed in the influential report of a deteriorating US science and technology ecosystem has, if anything, worsened.

The undercurrents of entrepreneurial development: Impressions from a globalizing city

High-standard entrepreneurial ventures are usually justified as a means of stimulating capital investment for social, spatial, and financial side benefits for the public. We show the unequal consequences of these ideas in Tel Aviv—Jaffa, where the location of the projects subject to such obligations is not really mitigated by the location of municipal public flagship projects and by the spatial distribution of the municipal development budget. As in many other urban centers, planning bureaucrats in this city advanced numerous expensive residential ventures to finance a variety of municipal initiatives and increase public budgets. Despite their success in attracting private investments, collecting developers’ taxes, exactions, and revenues, the more complicated issues and the less affluent communities see less private and public spending. We link this tendency to the growing fragmentation of urban planning, to the supremacy of the local plan—practically operating as a planning deal—and to the emergence of various municipal tools supporting the feasibility of the deal. We thus claim that while the entrepreneurial planning practice fosters the connections between flexible planning and urban economy, a short-range financial conclusion is unavoidable—most of its products are directed to attract additional similar projects. By tracing this institutional conduct, we claim that while current urban planning is subordinated to market logic and investments, it is actually trapped in a vicious cycle of deepening its own economic appeal. Simultaneously, planners are losing the ability to direct public goods to where they are needed.