Public Expenditure Composition and Economic Growth: Optimal Adjustment by Using Gradient Method
Previous researches studied how the components of fiscal spending affect the economic growth but did not explicitly enquire into how to adjust the components in order to achieve the highest rate of economic growth starting from the present shares of components. We investigate how to determine the optimal adjustment by introducing a gradient method which explicitly takes account for the adjustment cost and incorporates the constraint that shares of components are summed up to one. The resulting optimal adjustment shares are proportional to the deviations from the average over elements of a gradient vector and independent from the choice of regression equations. The optimal adjustment share is completely estimated by using the linear regression with any choice of omitted variable if the adjustment cost is given. The result is free from multicollinearity problem but is considering all adjustment costs unlike most of previous researches. The paper also provides an illustrative example taken from the annual panel data for the Japanese prefectural governments.
|Date of creation:||May 2007|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.econ.osaka-u.ac.jp/|
More information through EDIRC
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.:
- Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
- Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1996.
"The composition of public expenditure and economic growth,"
CEMA Working Papers
77, China Economics and Management Academy, Central University of Finance and Economics.
- Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
- Davoodi, Hamid & Zou, Heng-fu, 1998.
"Fiscal Decentralization and Economic Growth: A Cross-Country Study,"
Journal of Urban Economics,
Elsevier, vol. 43(2), pages 244-257, March.
- Hamid Davoodi & Heng-fu Zou, 1996. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," CEMA Working Papers 98, China Economics and Management Academy, Central University of Finance and Economics.
- Mendoza, Enrique G. & Milesi-Ferretti, Gian Maria & Asea, Patrick, 1997.
"On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture,"
Journal of Public Economics,
Elsevier, vol. 66(1), pages 99-126, October.
- Asea, Patrick & Mendoza, Enrique G & Milesi-Ferretti, Gian Maria, 1996. "On the Ineffectiveness of Tax Policy in Altering Long- Run Growth: Harberger's Superneutrality Conjecture," CEPR Discussion Papers 1378, C.E.P.R. Discussion Papers.
- Barro, R.J., 1988.
"Government Spending In A Simple Model Of Endogenous Growth,"
RCER Working Papers
130, University of Rochester - Center for Economic Research (RCER).
- Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
- Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
- Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
- Danyang Xie & Heng-fu Zou & Hamid Davoodi, 1999.
"Fiscal Decentralization and Economic Growth in the United States,"
CEMA Working Papers
109, China Economics and Management Academy, Central University of Finance and Economics.
- Xie, Danyang & Zou, Heng-fu & Davoodi, Hamid, 1999. "Fiscal Decentralization and Economic Growth in the United States," Journal of Urban Economics, Elsevier, vol. 45(2), pages 228-239, March.
- Levine, Ross & Renelt, David, 1992.
"A Sensitivity Analysis of Cross-Country Growth Regressions,"
American Economic Review,
American Economic Association, vol. 82(4), pages 942-63, September.
- Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
When requesting a correction, please mention this item's handle: RePEc:osk:wpaper:0717. 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: (Atsuko SUZUKI)
If references are entirely missing, you can add them using this form.