Fiscal Policies and the Terms of Trade in an Endogenous Growth Model with Overlapping Generations
This paper investigates how changes in fiscal policy can affect relative prices, optimal savings and steady state utility in a two-country, overlapping generations model of endogenous growth. We develop a simple model that combines Blanchard-type consumers with uncertain lifetimes, with an endogenous growth model â€¦ la Romer in which there are production externalities from the capital stock of other firms. The basic insight is to highlight, within an optimising framework, a potentially interesting link between fiscal policy and the terms of trade. A permanent rise in one country's share of government consumption to GDP results in an improvement in its terms of trade, a fall in its share of private consumption to GDP and a lower growth rate. A steady state rise in the public debt to GDP ratio results in an increase in the share of consumption to GDP, a higher demand for the foreign good and a lower growth rate. The effect upon the terms of trade is, however, ambiguous.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Romer, Paul M, 1986.
"Increasing Returns and Long-run Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 94(5), pages 1002-1037, October.
- Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
- Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
- Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
- Johansen, S., 1991. "Determination of Cointegration Rank in the Presence of a Linear Trend," Papers 76a, Helsinki - Department of Economics.
- Davidson, James & Hall, Stephen, 1991. "Cointegration in Recursive Systems," Economic Journal, Royal Economic Society, vol. 101(405), pages 239-251, March.
- Frenkel, Jacob A & Razin, Assaf, 1986. "The International Transmission and Effects of Fiscal Policies," American Economic Review, American Economic Association, vol. 76(2), pages 330-335, May.
- Jacob A. Frenkel & Assaf Razin, 1986. "The International Transmission and Effects of Fiscal Policies," NBER Working Papers 1799, National Bureau of Economic Research, Inc.
- Sibert, Anne, 1990. "Taxing capital in a large, open economy," Journal of Public Economics, Elsevier, vol. 41(3), pages 297-317, April.
- Bowden, Roger J, 1973. "The Theory of Parametric Identification," Econometrica, Econometric Society, vol. 41(6), pages 1069-1074, November.
- Saikkonen, Pentti, 1993. "Estimation of Cointegration Vectors with Linear Restrictions," Econometric Theory, Cambridge University Press, vol. 9(01), pages 19-35, January.
- Rothenberg, Thomas J, 1971. "Identification in Parametric Models," Econometrica, Econometric Society, vol. 39(3), pages 577-591, May.
- Marcellino, Massimiliano & Mizon, Grayham E., 2000. "Modelling shifts in the wage-price and unemployment-inflation relationships in Italy, Poland and the UK," Economic Modelling, Elsevier, vol. 17(3), pages 387-413, August.
- Massimiliano Marcellino & Grayham E. Mizon, "undated". "Modelling shifts in the wage-price and unemployment-inflation relationships in Italy, Poland, and the UK," Working Papers 145, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Marcellino, M. & Mizon, G.E., 1999. "Modelling shifts in the wage-price and unemployment-inflation relationships in Italy, Poland, and the UK," Discussion Paper Series In Economics And Econometrics 9917, Economics Division, School of Social Sciences, University of Southampton.
- Calvo, Guillermo A & Obstfeld, Maurice, 1988. "Optimal Time-Consistent Fiscal Policy with Finite Lifetimes," Econometrica, Econometric Society, vol. 56(2), pages 411-432, March.
- Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-594, June.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
- Hendry, David F & Doornik, Jurgen A, 1997. "The Implications for Econometric Modelling of Forecast Failure," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(4), pages 437-461, September.
- Nielsen, Soren Bo & Sorensen, Peter Birch, 1991. "Capital income taxation in a growing open economy," European Economic Review, Elsevier, vol. 35(1), pages 179-197, January.
- Søren Bo Nielsen & Peter Birch Sørensen, 1989. "Capital Income Taxation in a Growing Open Economy," Discussion Papers 89-14, University of Copenhagen. Department of Economics.
- Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.).
- Pesaran, M. H. & Smith, Ron P., 1998. "Structural Analysis of Cointegrating VARs," Cambridge Working Papers in Economics 9811, Faculty of Economics, University of Cambridge.
- Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March.
- Peter C.B. Phillips, 1988. "Optimal Inference in Cointegrated Systems," Cowles Foundation Discussion Papers 866R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1989.
- Stephen G. Hall & Jennifer V. Greenslade & S. G. Brian Henry, 1999. "On the Identification of Cointegrated Systems in Small Samples: Practical Procedures with an Application to UK Wages and Prices," Computing in Economics and Finance 1999 643, Society for Computational Economics.
- Richmond, J, 1976. "Aggregation and Identification," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(1), pages 47-56, February.
- Sangjoon Kim & Neil Shephard & Siddhartha Chib, 1998. "Stochastic Volatility: Likelihood Inference and Comparison with ARCH Models," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 361-393.
- Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
- Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
- M. Hashem Pesaran & Ron P. Smith, 1998. "Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 471-505, December.
- Bovenberg, A.L., 1986. "Capital income taxation in growing open economies," Other publications TiSEM d92d32f6-df9f-418b-bbd3-d, Tilburg University, School of Economics and Management.
- Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 313-334, June.
- Johansen, S., 1991. "Testing Weak Exogeneity and the Order of Cointegration in UK Money Demand Data," Papers 78, Helsinki - Department of Economics.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834.
- Brock, Philip L., 1988. "Investment, the current account, and the relative price of non-traded goods in a small open economy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 235-253, May.
- Gilles Saint-Paul, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1243-1259.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Turnovsky, Stephen J., 1996. "Fiscal policy, growth, and macroeconomic performance in a small open economy," Journal of International Economics, Elsevier, vol. 40(1-2), pages 41-66, February.
- Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
- Johansen, Soren, 1995. "Identifying restrictions of linear equations with applications to simultaneous equations and cointegration," Journal of Econometrics, Elsevier, vol. 69(1), pages 111-132, September.
- Hendry, D.F. & Mizon, G.E., 1999. "On selecting policy analysis models by forecast accuracy," Discussion Paper Series In Economics And Econometrics 9918, Economics Division, School of Social Sciences, University of Southampton.
- Bovenberg, A. Lans, 1986. "Capital income taxation in growing open economies," Journal of Public Economics, Elsevier, vol. 31(3), pages 347-376, December.
- Frenkel, Jacob A & Razin, Assaf, 1987. "Fiscal Policies and the World Economy; An Intertemporal Approach (Cambridge, Mass.: MIT Press, 1987)," MPRA Paper 20438, University Library of Munich, Germany.
- Clements, Michael P & Hendry, David F, 1996. "Intercept Corrections and Structural Change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 475-494, Sept.-Oct. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:22:y:2000:i:3:p:445-470. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.