Essays on growth and government efficiency

• Autor(es): Oliveira, Francisca Rodrigues Sarmento Guedes de
• Data: 2006
• Identificador Persistente: http://hdl.handle.net/10362/151314
• Origem: Repositório Institucional da UNL
• Assunto(s): Domínio/Área Científica: Ciências Sociais: Economia e Gestão
• Tipo de Documento: Tese de doutoramento
• Idioma: Inglês
• Orientador(es): Tavares, José
• Contribuidor(es): RUN

Descrição

This dissertation includes three papers on growth and government efficiency: The first paper sets the background by addressing two important issues: a) identifying an objective and simple quantifiable measure of government efficiency and b)testing possible determinants of such quality. As measures of government efficiency the paper includes the ratios of infant mortality rate to health expenditures as a percentage of GDP, and the ratios of drop-out and illiteracy rates to education expenditures also as a percentage of GDP. The paper assumes that government efficiency in providing health and education services depends on economic, political and cultural factors. The paper concludes that there is considerable variability of government quality globally and that this variability is determined by differences in a country's economic, political and cultural factors. The paper also identifies an interesting and statistically significant relationship between the stock of public capital and government efficiency. In the second paper it is presented a Solow growth model that introduces, in addition to the private sector, the government as a decision maker. The private production function has as inputs not only private capital and labor but also government quality and a public good. The government has to choose its level of expenditure on public goods vs. its investment in public capital. Public capital is the only determinant of government quality. The paper considers the steady state levels of each identified variable and then analyzes the relationship between government decisions and these levels. The third paper examines a model similar to paper 2. However, additionally, this paper introduces consumer decisions and assumes that individuals can be differentiated by their relative factor endowment (labor and private capital). The results indicate that the economy's growth rate has an inverted U -shape relationship with the tax rate on private capital T. They also indicate that the tax rate has a positive relation with the amount of money the government spends on consumption, 0, (rather than on investment in public capital). The paper also concludes that the choice of the tax rate will be above the optimal level and hence the potential growth rate will not be achieved. Taking the analysis further, it can be assumed that voters will try to correct lower rates of public investment by choosing an higher tax rate. This tax rate will be higher if society is more disparate in terms of income distribution. However, by reducing0, T automatically decreases thus bringing us closer to the optimum. Finally, the conclusion from a public policy perspective is that there is a negative relationship between the chosen tax rate and public investment and that this relationship is highly sensitive to the model parameters.