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Authors: SHAO LEI
Keywords: Returns to education, Growth dynamics, Immobility, Inequality, Social security, Health spending
Issue Date: 13-Mar-2015
Source: SHAO LEI (2015-03-13). ESSAYS ON MACROECONOMIC DYNAMICS. ScholarBank@NUS Repository.
Abstract: This thesis consists of three independent chapters (or papers): the first on the dynamics of an extended version of the Lucas (1988) endogenous growth model, the second on the effects of intergenerational mobility and social security on savings and inequality in a dynastic model with life-cycle features, and the last is an empirical study of the causal effects of economic growth on health expenditures using oil price shocks as the instrument. The first two chapters are co-authored with my supervisor, Professor Jie Zhang. Diverse development experiences across nations and over time challenge standard growth theories. In the first chapter, we investigate the dynamics of balanced growth paths (BGPs) in an extended Lucas model incorporating physical capital inputs, human capital externalities, and decreasing returns to scale in education. Combining such extensions with increasing social returns in production maintains the existence of BGPs, creates indeterminacies for plausible human capital externalities, and induces possibly two BGPs for sufficiently elastic intertemporal substitution. The high-growth BGP accompanies more resources devoted to education than the low-growth BGP. Income taxes can either promote or depress long-run growth and have divergent effects on multiple BGPs. In the last two decades of the 20th century, two noteworthy macroeconomic trends in the United States were the sharp decline of personal savings and the rise of income and wealth inequality. Over the same period, the social security program expanded by more than one fifth and intergenerational mobility declined. In the second chapter, we examine the effects of falling intergenerational mobility and rising social security on savings and distributions of wealth and income in a dynastic model with two-sided altruism and uncertain earnings ability. We find that household responses to changes in intergenerational mobility and social security are both heterogeneous: When mobility falls, high-earning households reduce savings while low-earning households raise savings; when social security expands, households experiencing upward (downward) mobility between generations tend to reduce (raise) savings. Both life-cycle and two-sided altruism features of the model improve the fitting of the simulated wealth distribution to the data. The counter-factual simulations find that falling mobility and expanding social security can explain more than half of both the fall in gross domestic savings and the rises of wealth and income inequality from 1980 to 2000 in the United States. The last chapter is motivated by the rapid rise of health spending in both developed and emerging economies, and attempts to examine the causal effects of economic growth on national health expenditures, using time series variations in international oil prices interacted with proved oil reserves as an instrument for GDP growth. Contrary to what might have been expected, the benchmark estimate for the effects of the GDP per capita growth on the health expenditures per capita growth is -0.96 with a standard error 0.09, and its 95% confidence interval is [-1.13, -0.78]. Private and out-of-pocket expenditures on health are more negatively responsive to economic growth than public expenditures. The positive (negative) effects of economic growth on adult mortality rates (life expectancy) suggest that the higher opportunity cost of receiving medical services when the economic is growing fast is probably the dominating force. Using growth rates over longer horizons, the long-run estimates remain negative and significant. Various robustness checks are conducted and the negative effects of economic growth on health expenditures remain robust.
Appears in Collections:Ph.D Theses (Open)

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