Abstract
This paper compares the impact of government investment and government consumption on macroeconomic aggregates and inequality when the government deficit is money‐financed while maintaining ...a fixed debt‐money ratio. Real aggregate quantities are independent of the debt‐money ratio, as is wealth inequality, but income inequality is impacted. We also investigate the impact of these two forms of government expenditure on the macroeconomic aggregates and distributions, illustrating their sharply contrasting effects on the tradeoffs they entail. While government investment is more effective in increasing the growth rate and moderating inflation, it has a more adverse effect on long‐run income inequality.
Remittances and the informal economy Chatterjee, Santanu; Turnovsky, Stephen J.
Journal of development economics,
July 2018, 2018-07-00, Letnik:
133
Journal Article
Recenzirano
Many developing countries are characterized by a large informal sector, and are also often heavily dependent on remittance inflows from abroad. We develop a general equilibrium framework to ...understand better the dynamic absorption of remittances in a two-sector small open economy, by incorporating many of the stylized features of the informal sector. Calibrating the model to yield a long-run equilibrium consistent with sample averages for 56 developing countries for the period 1990–2014, we show that the effect of remittances depends critically on how they impinge on the recipient economy, i.e., whether these inflows are (i) permanent or temporary, (ii) associated with a collateral effect to securitize borrowing, and (iii) exogenous or countercyclical. We also identify the conditions under which remittances are associated with an expansion of the informal sector, as well as the Dutch Disease effect.
•The effects of remittances in the presence of an informal sector is analyzed.•The use of remittances as collateral to securitize debt is examined.•We identify conditions under which remittances lead to a Dutch Disease effect.•Impact depends on whether remittances are exogenous or countercyclical.•Countercylical remittances amplify the safety-net feature of self-employment in the informal sector.
We employ a stochastic growth model to study the impact of international financial globalization on income inequality. A key element is that financial frictions facing the economy pertain to both ...lending and borrowing abroad, and the process of financial liberalization is specified in terms of reducing these frictions. We emphasize two key channels through which liberalization affects inequality. The first is by reducing the costs of investing and borrowing abroad. Since these activities favor the wealthy, they tend to increase inequality. But, in addition, these two forms of liberalization have sharply contrasting effects on domestic activity causing contrasting impacts on inequality. Numerical simulations suggest that income inequality is more sensitive to financial liberalization that favors foreign investment than if it is directed to reducing foreign borrowing costs. The simulations also suggest that the overall liberalization that occurred during 1970–2015, accounted for a significant fraction of the increase in income inequality experienced over that period. The main findings are broadly supported by the empirical evidence using the most recent data for a sample of 96 countries for the period 1970–2015.
Abstract This paper compares the impact of setting the money growth rate versus pegging the interest rate on aggregate real variables and their distributions. In either case, the monetary policy, in ...isolation, requires the price level to jump to ensure intertemporal solvency but has no real dynamic effects. The choice of monetary instrument has consequences for wealth and income inequality, doing so in potentially conflicting ways. Following real shocks, the accompanying monetary policy will influence the ensuing transition. For real variables, this operates entirely through its impact on the speed of convergence and is negligible. For financial variables, the impact also depends upon the initial jump in the price level. These effects vary more substantially between policies and have more significant distributional consequences. Overall, the impact on inequality is dominated by the real shocks themselves, rather than the accompanying monetary policy. Finally, we compare these two policies to inflation targeting, which is shown to be the least favorable for reducing wealth inequality, but the most favorable for reducing income inequality.
The relationship between growth and inequality is complex. After discussing some general background issues, motivated by extensive empirical evidence this paper focuses on public investment as a key ...determinant of the relationship. Two alternative frameworks, each offering sharply contrasting perspectives, are presented. The first employs the “representative consumer theory of distribution” where agent heterogeneity originates with wealth endowments. It yields an equilibrium in which aggregate dynamics drives distributional dynamics. In the second, agent heterogeneity arises from idiosyncratic productivity shocks and generates an equilibrium in which distributional dynamics drive growth. The impact of government investment on growth and inequality are shown to contrast sharply in the two approaches, thus illustrating the complexity of the growth-inequality relationship.
The period 1970–2015 has seen significant increases in both income inequality and financial globalization. We examine this relationship empirically, focusing on both the Gini coefficient, and the ...incomes of quintiles as we move up the income scale. In doing so, we take account of both the country's level of development, and the contemporaneous globalization in trade. Overall, our results support the finding that financial globalization tends to increase income inequality. They also suggest that reducing the costs of foreign investment have a bigger impact on inequality than do reducing borrowing costs. Our findings are less definitive with respect to the impact of trade liberalization on income inequality, though the results using the quintile data are supportive of the view that trade liberalization reduces income inequality. Finally, our results provide compelling evidence for the notion that the level of development has a strong nonlinear impact on income inequality, one that is consistent with the “inverted Kuznets curve,” as characterizing the more recent experience.
This paper compares the consequences of “active” vs. “passive” Taylor rules for wealth and income inequality. Since the distinction is operative only along transitional paths, we compare the ...implications for two forms of government expenditure that generate such transitions. Our results confirm that the contrasting effects obtained previously for the aggregate economy have significant distributional consequences. For an active Taylor rule, whether the government increases its expenditure on consumption, or productively, wealth inequality will increase. Expenditure on the two public goods yields divergent paths for income inequality. Government consumption expenditure raises income inequality; productive government expenditure reduces it. If the Taylor rule is passive, an increase in either form of government expenditure reduces wealth inequality initially and over time. Income inequality initially increases, but declines over time, although remaining above its previous steady-state level.
Infrastructure and inequality Chatterjee, Santanu; Turnovsky, Stephen J.
European economic review,
11/2012, Letnik:
56, Številka:
8
Journal Article
Recenzirano
We develop a model in which public capital is both an engine of growth and a determinant of the distributions of wealth, income, and welfare. Government investment increases wealth inequality over ...time, regardless of its financing. The time path of income inequality is, however, highly sensitive to financing policies, and is often characterized by sharp intertemporal tradeoffs, with income inequality declining in the short run but increasing in the long run. Public investment generates a positive correlation between growth and income inequality along the transition path, but their short-run and long-run relationship depends critically on (i) how externalities impinge on allocation decisions, (ii) financing policies, and (iii) the time period of consideration. Finally, these policies also generate sharp trade-offs between average welfare and its distribution, with government investment improving average welfare, but also increasing its dispersion. Our results are obtained numerically but extensive sensitivity analysis confirms their robustness across key parameter values.
► Public capital is an engine of growth and determinant of wealth, income, and welfare distributions. ► Government investment increases wealth inequality over time, regardless of financing. ► Timepaths of income inequalitydepend upon financing, and involve intertemporal tradeoffs. ► Growth–inequality association depends on externalities, financing policies, and time horizon. ► Public investment generates sharptrade-offs between average welfare and its distribution.
This paper shows that for five small commodity-exporting countries that have adopted inflation targeting monetary policies, world commodity price aggregates have predictive power for their CPI and ...PPI inflation, particularly once possible structural breaks are taken into account. This conclusion is robust to using either disaggregated or aggregated commodity price indexes (although the former perform better), the currency denomination of the commodity prices, and to using mixed-frequency data. In pseudo out-of-sample forecasting, commodity indexes outperform the random walk and AR(1) processes, although the improvements over the latter are sometimes modest.
