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The Dynamics of Public Spending and Economics Development

Hao, Xin

[Thesis]. Manchester, UK: The University of Manchester; 2015.

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Abstract

The objective of the thesis is to provide a theory that explains the stylized facts regarding the trend of taxation policies, public spending and sovereign debt in advanced economies for the past couple of decades. The thesis focuses on distinguishing two types of public spending - productive investment and welfare payment and develops two different frameworks to examine the importance of the composition of these two types of public spending for economic growth and welfare.Chapter 2 presents a dynamic political-economy model in which voters decide tax rates and the proportion of public goods expenditure devoted to non-productive (but utility-enhancing) public goods. This non-productive public goods expenditure gives rise to a habit effect - it has to be at least as large as a fraction of last period value to provide utility. The median voter theorem applies. Starting from a steady state without the habit effect, its introduction leads to transitional dynamics that mimic several stylized facts: in particular, countries with higher income tend to have larger government and spend more on welfare programme.Chapter 3 studies the impact of public deficit on long-run economic growth by distinguishing the different types of government spending: investment and welfare payment. The model in this chapter predicts a non-monotonic or threshold effect in the relationship between public deficit and steady state growth rate. The composition of the public spending (the ratio between productive and non-productive) dictates the "threshold" in the national debt level. Countries which spend more on providing productive public goods could maintain a higher level of national debt that promotes growth.

Bibliographic metadata

Type of resource:
Content type:
Form of thesis:
Type of submission:
Degree type:
Doctor of Philosophy
Degree programme:
PhD/MRes (Economics) +3
Publication date:
Location:
Manchester, UK
Total pages:
88
Abstract:
The objective of the thesis is to provide a theory that explains the stylized facts regarding the trend of taxation policies, public spending and sovereign debt in advanced economies for the past couple of decades. The thesis focuses on distinguishing two types of public spending - productive investment and welfare payment and develops two different frameworks to examine the importance of the composition of these two types of public spending for economic growth and welfare.Chapter 2 presents a dynamic political-economy model in which voters decide tax rates and the proportion of public goods expenditure devoted to non-productive (but utility-enhancing) public goods. This non-productive public goods expenditure gives rise to a habit effect - it has to be at least as large as a fraction of last period value to provide utility. The median voter theorem applies. Starting from a steady state without the habit effect, its introduction leads to transitional dynamics that mimic several stylized facts: in particular, countries with higher income tend to have larger government and spend more on welfare programme.Chapter 3 studies the impact of public deficit on long-run economic growth by distinguishing the different types of government spending: investment and welfare payment. The model in this chapter predicts a non-monotonic or threshold effect in the relationship between public deficit and steady state growth rate. The composition of the public spending (the ratio between productive and non-productive) dictates the "threshold" in the national debt level. Countries which spend more on providing productive public goods could maintain a higher level of national debt that promotes growth.
Thesis main supervisor(s):
Thesis co-supervisor(s):
Language:
en

Institutional metadata

University researcher(s):

Record metadata

Manchester eScholar ID:
uk-ac-man-scw:275881
Created by:
Hao, Xin
Created:
19th October, 2015, 12:06:23
Last modified by:
Hao, Xin
Last modified:
16th November, 2017, 14:24:04

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