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Taxation, Corruption, and Growth

Philippe Aghion, Ufuk Akcigit, Julia Cagé, William R. Kerr
European Economic Review, 2016
Abstract
We build an endogenous growth model to analyze the relationships between taxation, corruption, and economic growth. Entrepreneurs lie at the center of the model and face disincentive effects from taxation but acquire positive benefits from public infrastructure. Political corruption governs the efficiency with which tax revenues are translated into infrastructure. The model predicts an inverted-U relationship between taxation and growth, with corruption reducing the optimal taxation level. We find evidence consistent with these predictions and the entrepreneurial channel using data from the Longitudinal Business Database of the US Census Bureau. The marginal effect of taxation for growth for a state at the 10th or 25th percentile of corruption is significantly positive; on the other hand, the marginal effects of taxation for growth for a state at the 90th percentile of corruption are much lower across the board. We make progress towards causality through Granger-style tests and by considering periphery counties where effective tax policy is largely driven by bordering states. Finally, we calibrate our model and find that the calibrated taxation rate of 37% is fairly close to the model׳s estimated welfare maximizing taxation rate of 42%. Reducing corruption provides the largest potential impact for welfare gain through its impact on the uses of tax revenues.
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Declining Business Dynamism: What We Know and the Way Forward

Ryan A. Decker, John Haltiwanger, Ron S. Jarmin, Javier Miranda
American Economic Review: Papers and Proceedings, Nr. 5, 2016
Abstract
A growing body of evidence indicates that the U.S. economy has become less dynamic in recent years. This trend is evident in declining rates of gross job and worker flows as well as declining rates of entrepreneurship and young firm activity, and the trend is pervasive across industries, regions, and firm size classes. We describe the evidence on these changes in the U.S. economy by reviewing existing research. We then describe new empirical facts about the relationship between establishment-level productivity and employment growth, framing our results in terms of canonical models of firm dynamics and suggesting empirically testable potential explanations.
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Buy, Keep, or Sell: Economic Growth and the Market for Ideas

Ufuk Akcigit, Murat Alp Celik, Jeremy Greenwood
Econometrica, Nr. 3, 2016
Abstract
An endogenous growth model is developed where each period firms invest in researching and developing new ideas. An idea increases a firm's productivity. By how much depends on the technological propinquity between an idea and the firm's line of business. Ideas can be bought and sold on a market for patents. A firm can sell an idea that is not relevant to its business or buy one if it fails to innovate. The developed model is matched up with stylized facts about the market for patents in the United States. The analysis gauges how efficiency in the patent market affects growth.
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Regional Capital Flows and Economic Regimes: Evidence from China

Liuchun Deng, Boqun Wang
Economics Letters, April 2016
Abstract
Using provincial data from China, this paper examines the pattern of capital flows in relation to the transition of economic regimes. We show that fast-growing provinces experienced less capital inflows before the large-scale market reform, contrary to the prediction of the neoclassical growth theory. As China transitioned from the central-planning economy to the market economy, the negative correlation between productivity growth and capital inflows became much less pronounced. From a regional perspective, this finding suggests domestic institutional factors play an important role in shaping the pattern of capital flows.
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Does the Technological Content of Government Demand Matter for Private R&D? Evidence from US States

Viktor Slavtchev, Simon Wiederhold
American Economic Journal: Macroeconomics, Nr. 2, 2016
Abstract
Governments purchase everything from airplanes to zucchini. This paper investigates the role of the technological content of government procurement in innovation. In a theoretical model, we first show that a shift in the composition of public purchases toward high-tech products translates into higher economy-wide returns to innovation, leading to an increase in the aggregate level of private R&D. Using unique data on federal procurement in US states and performing panel fixed-effects estimations, we find support for the model's prediction of a positive R&D effect of the technological content of government procurement. Instrumental-variable estimations suggest a causal interpretation of our findings.
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Team Building and Hidden Costs of Control

Gerhard Riener, Simon Wiederhold
Journal of Economic Behavior and Organization, March 2016
Abstract

In a laboratory experiment, we investigate the interaction of two prominent firm strategies to increase worker effort: team building and control. We compare a team-building treatment where subjects initially play a coordination game to gain common experience (CE) with an autarky treatment where subjects individually perform a task (NCE). In both treatments, subjects then play two-player control games where agents provide costly effort and principals can control to secure a minimum effort. CE agents always outperform NCE agents. Conditional on control, however, CE agents’ effort is crowded out more strongly, with the effect being most pronounced for agents who successfully coordinated in the team-building exercise. Differential reactions to control perceived as excessive is one explanation for our findings.

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Transition to Clean Technology

Daron Acemoglu, Ufuk Akcigit, Douglas Hanley, William R. Kerr
Journal of Political Economy, Nr. 1, 2016
Abstract
We develop an endogenous growth model in which clean and dirty technologies compete in production. Research can be directed to either technology. If dirty technologies are more advanced, the transition to clean technology can be difficult. Carbon taxes and research subsidies may encourage production and innovation in clean technologies, though the transition will typically be slow. We estimate the model using microdata from the US energy sector. We then characterize the optimal policy path that heavily relies on both subsidies and taxes. Finally, we evaluate various alternative policies. Relying only on carbon taxes or delaying intervention has significant welfare costs.
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Dual Labor Markets at Work: The Impact of Employers’ Use of Temporary Agency Work on Regular Workers’ Job Stability

Boris Hirsch
ILR Review, Nr. 5, 2016
Abstract
Fitting duration models on an inflow sample of jobs in Germany starting in 2002 to 2010, the author investigates the impact of employers’ use of temporary agency work on regular workers’ job stability. In line with dual labor market theory, the author finds that nontemporary jobs are significantly more stable when employers use temporary agency workers. The rise in job stability stems mainly from reduced transitions into nonemployment, suggesting that nontemporary workers are safeguarded against involuntary job losses. The findings are robust to controlling for unobserved permanent employer characteristics and changes in the observational window that comprises the labor market disruption of the Great Recession.
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Unemployment in the Great Recession: A Comparison of Germany, Canada, and the United States

Florian Hoffmann, Thomas Lemieux
Journal of Labor Economics, S1 Part 2 2016
Abstract
This paper looks at the surprisingly different labor market performance of the United States, Canada, Germany, and several other OECD countries during and after the Great Recession of 2008–9. A first important finding is that the large employment swings in the construction sector linked to the boom and bust in US housing markets is an important factor behind the different labor market performances of the three countries. We also find that cross-country differences among OECD countries are consistent with a conventional Okun relationship linking gross domestic product growth to employment performance.
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Burdett–Mortensen Model of on-the-Job Search with Two Sectors

Florian Hoffmann, Shouyong Shi
Review of Economic Dynamics, Special Issue in Honor of Dale Mortensen 2016
Abstract
The focus of this paper is on the steady state of a two-sector economy with undirected search where employed and unemployed workers can search for jobs, both within a sector and between the sectors. As in the one-sector model, on-the-job search generates wage dispersion among homogeneous workers. The analysis of the two-sector model uncovers a property called constant tension that is responsible for analytical tractability. We characterize the steady state in all cases with constant tension. When time discounting vanishes, constant tension yields the endogenous separation rate in each sector as a linear function of the present value for a worker. The one-sector economy automatically satisfies constant tension, in which case the linear separation rate implies that equilibrium offers of the worker value are uniformly distributed. Constant tension also has strong predictions for worker transitions and value/wage dispersion, both within a sector and between the two sectors. When constant tension does not hold, we compute the steady state numerically and illustrate its properties.
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