CESifo Economic Studies - Advance Access

Rental Prices, Rates of Return, Capital Aggregation and Productivity: Evidence from EU and US

Erumban, A. A. — 2008-07-03

With the increasing importance of investment in information and communication technology, methods for measuring the contribution of capital to growth have re-assumed centre-stage in recent growth accounting literature. The importance of using capital service growth rates rather than capital stock growth rates has long been advocated, and has become mainstream practice. However, the choice for a particular rate of return in the derivation of capital service prices is not straightforward and has barely been researched. Using four alternative rental price models —based on both external and internal rates of return models—this article quantifies the differences in total factor productivity growth rates (TFPG) under different model assumptions. The differences in TFPG are also examined in terms of the inclusion of taxes and subsidies in the calculation of rental prices. Empirical analysis carried out for four EU countries and the US in 26 industries during 1979–2003 shows that the use of capital stock overestimates TFPG in most industries. Incorporation of taxes seems to have only modest effect. The magnitude of divergence generated by alternative rental price models-particularly between internal models- is quite low. The difference is seen to be relatively high between external rate of return models and internal rate of return models. (JEL Codes: E01,O47)

Macroeconomic Effects of Public Education Expenditure

Angelopoulos, K., Malley, J., Philippopoulos, A. — 2008-07-01

This article studies the growth and welfare effects of public education spending in the USA for the post-war period. We calibrate a standard dynamic general equilibrium model, where human capital is the engine of long-run endogenous growth. Our results suggest that while increases in public education spending raise growth, these increases are not necessarily welfare promoting. Welfare gains however can be realized if increases in public education spending are accompanied by changes in the government tax-spending mix. (JEL codes: H52, E62)

Information, Coordination and the Industrialization of Countries

Englmaier, F., Reisinger, M. — 2008-02-20

The industrialization process of a country is often plagued by a failure to coordinate investment decisions. Using the Global Games approach we can solve this coordination problem and eliminate the problem of multiple equilibria. We show how appropriate information provision enhances efficiency. We discuss extensions of the model and argue that subsidies may be a property of a signalling equilibrium to overcome credibility problems in information provision. In addition, we point out possible problems with overreaction to public information. Furthermore, we suggest a new focus for development policy. (JEL codes: C72, C79, D82, F21, O12, O14)