FISCAL FEDERALISM,DECENTRALIZATION, AND ECONOMIC GROWTH: A META‐ANALYSIS

The theoretical literature on fiscal federalism has identified several channels through which government decentralization could affect economic growth. Much of the literature focuses on the efficiency aspects of a decentralized provision of public services, but decentralization may also increase growth by raising the ability of the political system to innovate and carry out reforms. In contrast, some authors argue that decentralization increases corruption and government inefficiency, and thus may diminish growth. Given this theoretical ambiguity, several studies have attempted to identify the effect of decentralization on economic growth empirically over the last two decades. We review and conduct a meta‐analysis of this empirical literature. Based on our analysis, we point out open questions and discuss possible ways to answer them. (JEL H77, O43, C52)     

FISCAL STRUCTURES AND ECONOMIC GROWTH: INTERNATIONAL EVIDENCE

Our paper systematically examines the effects of fiscal structure on economic growth. We find that for developing countries, debt-financed increases in government expenditure retard growth and tax-financed increases stimulate growth, while for developed countries, debt-financed increases in government expenditure do not affect growth and tax-financed increases lower growth. We impose the government budget constraint on the regression equations so that the precise changes in fiscal policy can be identified (e.g., the effect of a debt-financed increase in health expenditure), employing a pooled cross-section, time-series sample and fixed- and random-effect methods. (JEL 04, E6)     

PUBLIC SPENDING REALLOCATIONS AND ECONOMIC GROWTH ACROSS DIFFERENT INCOME LEVELS

This article examines the effects of public spending reallocations on economic growth. Assembling a disaggregated public spending dataset of 83 countries over the 1970–2011 period, we show that spending reallocations toward education, from health and social protection, have significant growth‐promoting effects across a wide range of countries' income levels. However, income heterogeneity matters, particularly when reallocations involve infrastructure spending. Specifically, a reallocation from this spending to education also promotes growth, albeit primarily when a country's income level is low. This occurs because the effects of infrastructure spending are particularly weak in low‐income countries, possibly due to the low quality of governance. (JEL O43, H50, O11)     

LEGISLATIVE TURNOVER,FISCAL POLICY,AND ECONOMIC GROWTH: EVIDENCE FROM U.S. STATE LEGISLATURES

Increased turnover among legislators can make them short‐sighted, affecting fiscal policy and economic growth. We exploit the exogenous variation in legislative turnover induced by term limit laws and by redistricting in the 50 U.S. states, finding that increased turnover increases capital spending by state governments, which may be designed to constrain future governments. The changes may cause long‐run distortions in the economy, reducing long‐term economic growth. (JEL H72, H73, H76)     

FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH: THE GROWTH ACCOUNTING PERSPECTIVE

A positive relationship between FDI and economic growth under two economic conditions has been estimated: a sufficient level of human capital and well-developed financial markets, respectively. However, these two conditions can be fundamentally different catalysts for FDI to promote economic growth in the perspective of growth accounting. Using data from 69 countries over 1970–1989, we find that FDI promotes productivity growth only when the host country reaches a threshold level of human capital; and FDI promotes capital growth only when a certain level of financial development is achieved. ( JEL F21)     

RISING R&D INTENSITY AND ECONOMIC GROWTH

Over the past decades, private R&D spending in the United States and other developed countries has been growing faster than gross domestic product. At the same time, the growth rates of per-capita and aggregate output have been rather stable, possibly declining slightly. This article proposes a growth model that can account for the observed phenomenon by explicitly describing competition among technological leaders and followers in individual markets in a way that is consistent with existing studies on firms' motivation to invest in R&D. The model shows the possibility that the unsustainable trend of rising R&D intensity persists for a very long time. (JEL O3, O4, L1)     

POVERTY AND ECONOMIC GROWTH: TRICKLE DOWN PETERS OUT

Previous studies have found that economic growth tends to "trickle down" to poor families. This study investigates whether use of a relative definition of poverty eliminates the impact of economic growth on the incidence of poverty of various demographic groups and whether a decrease in the impact of growth has occurred since 1964. With the exception of families with male heads, economic growth no longer affects poverty irrespective of whether a relative or absolute definition of poverty is used. Our findings indicate that the contribution of growth has been overstated, that much of the past success has been illusory, and that poverty will be more intractable in the future.     

INSTITUTIONS, TRANSACTION COSTS AND ECONOMIC GROWTH

This essay develops a theoretical framework which explores the historical obstacles to economic growth. These obstacles are examined in the context of the political/economic institutional framework of economies in history and consequent transaction costs that determine economic performance and growth. The essay concludes with specific suggestions for the study of economic growth.     

ENTERTAINING MALTHUS: BREAD,CIRCUSES, AND ECONOMIC GROWTH

Motivated by the basic adage that man does not live by bread alone, we offer a theory of historical economic growth and population dynamics where human beings need food to survive, but enjoy other things, too. Our model imposes a Malthusian constraint on food, but introduces a second good to the analysis that affects living standards without affecting population growth. We show that technological change does a good job explaining historical consumption patterns and population dynamics, including the Neolithic Revolution, the Industrial Revolution, and the Great Divergence. Our theory stands in contrast to models that assume a single composite good and a Malthusian constraint. These models generate negligible growth prior to the Industrial Revolution. However, recent revisions to historical data show that historical living standards—though obviously much lower than today's—varied over time and space much more than previously thought. These revisions include updates to Maddison's dataset, which served as the basis for many papers taking long‐run stagnation as a point of departure. This new evidence suggests that the assumption of long‐run stagnation is problematic. Our model shows that when we give theoretical accounting of these new observations the Industrial Revolution is much less puzzling. (JEL B10, I31, J1, N1, O30)     

SECULARIZATION AND LONG‐RUN ECONOMIC GROWTH

This paper integrates a simple theory of identity choice into a framework of endogenous economic growth to explain how secularization can be both cause and consequence of economic development. A secular identity allows an individual to derive more pleasure from consumption than religious individuals, leading secular individuals to work harder and to save more in order to experience this pleasure from consumption. These activities are conducive to economic growth. Higher income makes consumption more affordable and increases the appeal of a secular identity for the next generation. An extension of the basic model investigates the Protestant Reformation as an intermediate stage during the take‐off to growth. Another extension introduces intergenerationally dependent religious preferences and demonstrates how a social multiplier amplifies the speed of secularization. (JEL N30, O10, O40, Z12, Z13)     

ECONOMIC GROWTH AND THE SEPARATION OF CHURCH AND STATE: THE FRENCH CASE

This article provides a test of the secularization hypothesis, which argues that economic growth, industrialization, increased literacy, and low fertility decrease religiosity. It focuses on the elections of the secular politicians who voted in favor of the separation between Church and State in the French Parliament in 1905. If the secularization hypothesis is correct, these secular politicians should have been elected in the most developed areas of France at the turn of the twentieth century. Contrary to the predictions of the secularization hypothesis, we find that the support for secular politicians originated in the rural areas of France. (JEL Z12, D72, N43)     

POLITICAL IDEOLOGY AND ECONOMIC GROWTH: EVIDENCE FROM THE FRENCH DEMOCRACY

We provide a test of the impact of voters' political ideology on economic growth and of the role of preferences for government size as a transmission channel. We focus on France from the beginning of its stable democratic experience in 1871. A move of voters' ideology to the right increases economic growth over the total observation period. However, the growth effect of ideology is mediated by voters' preferences for government size only during the post‐World War II period. For reverse causality concerns, we use the political ideology of other historical democracies as an instrument variable for France's ideology. (JEL E6, O43, H11)