M ake A m erica G reat: Lo ng-R un Im p a cts o f S h o rt-R u n P u b lic Investm e nt A le x a n d r K o p y to v and H a o tia n X ia n g The Wharton School M a y 9, 2018 A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c t s o f S h o r t- R u n P u b lic I n v e s t m e n t 1 / 2 9
D o n a ld J . T ru m p O £ + F o llo w @realDonaldTrump T h e ro a d s a n d s id e w a lk s , a irp o rts a n d b rid g e s , a re p e rfe c t in D u b a i. E v e ry th in g lo o k s c le a n & s tro n g . In U .S ., e v e ry th in g is fa llin g a p a rt! RETWEETS LIKES 71 ־ g£Q-. - ,.* n [־=־, r־» V I * i i B £. X ¥ \\ 3 257 258 A 1 7:33 AM -1 9 May 2014 134 257 V 258 H illa ry C lin to n O E 3 ±* F o llo w v @HillaryClinton In v e s tin g in o u r in fra s tru c tu re is a b o u t m o re th a n c re a tin g g o o d jo b s : it's a b o u t m a in ta in in g o u r s ta tu s a s th e w o r ld ’s e c o n o m ic s u p e rp o w e r. RETWEETS LIKES r 4 ־ k. t v ~ ■OB ■ ■ i 598 1,335 7:06 PM -3 0 Nov 2015 ♦ » 184 598 V 1.3K < □ ► 4 i f ► 4 0 ^ 0־ =51■ ► 5 » ► ן A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c ts o f S h o r t - R u n P u b lic I n v e s tm e n t 2 / 2 9
► L a rry S u m m e rs: “T h e issue n o w is n o t w h e th e r th e US sh o u ld in ve st [in in fra s tru c tu re ] m ore b u t w h a t th e p o lic y fra m e w o rk sh o u ld be .” ► Ben B e rn a n ke : “ I w o u ld th in k ... th a t in fra s tru c tu re s p e n d in g th a t im p ro ve s o u r roads, o u r bridges, o u r schools, and ... w o u ld p ro b a b ly be th e h ig h e s t-re tu rn fisca l a c tio n s in te rm s o f g e ttin g h ig h e r g ro w th .” ► P aul K ru g m a n : “ In fra s tru c tu re please.” ► Joseph S tig litz : “ In fra s tru c tu re alo n e c o u ld a b sorb trillio n s o f d o lla rs in in v e s tm e n t, n o t o n ly tru e in th e d e v e lo p in g w o rld , b u t also in th e US, w h ic h has u n d e rin ve ste d in its core in fra s tru c tu re fo r decades.” -s | = 0י a o־< □ = ► A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c t s o f S h o r t- R u n P u b lic I n v e s t m e n t 3 / 2 9
M o tiv a tio n ► O n e o f th e fe w consensuses: A large-scale s h o rt-ru n g o v e rn m e n t in v e s tm e n t (G I) p ro g ra m ► C ru cia l t o u n d e rsta n d e c o n o m ic consequences p ro d u ce d by a large tra n s ito ry G I sh o ck ► C u rre n t m a c ro fra m e w o rk s : C o n sid e r sm a ll G I sh o cks in (a lm o s t) lin e a r R B C m o d e ls (B a x te r and K in g , 1993; Leepe r e t al., 2 0 1 0 ) ► Is th e re n o n -lin e a rity ? = ► a oי =| ־0 4 □ - s A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c t s o f S h o r t- R u n P u b lic I n v e s t m e n t 4 / 2 9
M o tiv a tio n F acts: In te rs ta te H ig h w a y C o n s tru c tio n a ro u n d 1960s N o n -d e fe n se Gl to o u tp u t O u tp u t p e r c a p ita , lo g d e v ia tio n 1950 1960 1970 1980 1990 2000 2010 1950 1955 1960 1965 1970 1975 1980 1985 1990 C o n s u m p tio n p e r c a p ita , lo g d e v ia tio n In v e s tm e n t p e r c a p ita , lo g d e v ia tio n 1950 1955 1960 1965 1970 1975 1980 1985 1990 1950 1955 1960 1965 1970 1975 1980 1985 1990 ־׳ = . 5 = ^ ( 0, 0 n d H a o t ia n X ia n g M A G : L o n g - R u n I m p a c ts o f S h o r t - R u n P u b li<
O v ervie w ► W e c o n s tru c t a R B C m o d e l w ith tw o s ta b le ste a d y s ta te s (s.s.) ► M u ltip lic ity arises because public capital com plem ents private choice ► Small shocks have tem porary outcomes, while large ones can lead to steady state transitions ► Rare switches across steady states can generate medium term cycles as in the data ► A p p ly o u r m o d e l t o tw o case stu d ie s: ► Can the large GI in the 1960s explain S-shaped dynam ics o f the US economy? ► Can a large GI expansion trigger a recovery from the Great Recession? >ג0י 4 □ = ► - e I = 0 , A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c t s o f S h o r t- R u n P u b lic I n v e s t m e n t 6 / 2 9
L ite ra tu re Review ► R B C m o d e ls w ith tra n s ito ry s h o c k to GI ► Baxter and King (1993), Leeper, Walker and Yang (2010) ► E n d o g e n o u s g ro w th m o d e ls w ith p e rm a n e n t ch a n g e in GI ► Barro (1990), Futagami, Morita and Shibata (1993), Eicher and Turnovsky (2000) ► E m p iric a l an a lysis o f GI ► Public capital elasticity: Aschauer (1989), Bom and Ligthart (2013) ► Nonlinear impact of GI: Fernald (1999), Candelon, Colletaz and Hurlin (2013) ► Multiplier papers: Perotti (2004), Auerbach and Gorodnichenko (2012), Ilzetzki, Mendoza and Vegh (2013) ► R B C m o d e ls w ith m u ltip le ste a d y s ta te s ► Schaal and Taschereau-Dumouchel (2015), Cai (2016) ► M e d iu m te rm flu c tu a tio n s ► Comin and Gertler (2006), Anzoategui, Comin, Gertler, Martinez (2017) < □ ► 4 & ► 4 = ► 4 ^ ► -I I = • 0 0 , 0־ A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c t s o f S h o r t- R u n P u b lic I n v e s t m e n t 7 / 2 9
I. M o d e l I ■ s ► -sl = ■ 0 0.0 A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c t s o f S h o r t- R u n P u b lic I n v e s tm e n t
H ous eholds ► H o u se h o ld w ith G H H prefe rence s u b je c t t o d is to rtio n a ry in c o m e ta x and lu m p sum ta x (tra n s fe rs ): 1+V 1 ץ— Y C t - k 1 + v ) !3* m a x E ^ 1 - Y t s.t. C t = (1 - T ) ( W tLt + R tK t + n t ) - It - Tt K t+ 1 = (1 - 5k)K t + It < □ = ► - s >ג,0י =| 0 A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c t s o f S h o r t- R u n P u b lic I n v e s t m e n t 9 / 2 9
✓ F irm s ► A c o n tin u u m o f s h o rt-liv e d firm s p ro d u ce u n d e r C -D te c h n o lo g y s u b je c t to n o n -c o n v e x te c h n o lo g y ch o ice u £ { H , L}: n = m a x {n H , k l } w h e re n H = m a x A ld/ k°k( K G ) a w - W l - R k- f k,/ s ---------------------- v ---------------------- ׳ high (H) utilization n L = m a x A ld/k°k( K G ) a - W l - Rk k,/ s ^ low (L) utilization ► A is a g g re g a te sh o ck: lo g A t + 1 = pA lo g A t + c t a c ^ , eA ~ N ( 0 ,1 ) D e fin e A n = ! h - n\_. F irm chooses H w h e n A n > 0 ► 4 □ ► 4 = ► < g ► < 1 ► - l | = •0 0,0־ A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c ts o f S h o r t- R u n P u b lic I n v e s tm e n t 1 0 / 2 9
Fiscal Rule ► L a w o f m o tio n o f p u b lic c a p ita l: K t+ 1 = (1 - £g )K tG + C t w h e re G l/o u tp u t ra tio g t = C t/Y t fo llo w s A R (1 ): N ( 0 , 1) g t+ 1 = (1 - pg )־ l + pggt + ag eg+ 1 , £g ► G ov co n su m e s a given fra c tio n o f o u tp u t: ► F in a n cin g : C l + C f = T Yt + Tt 4 □ ■ s ► -s i = OHO A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c ts o f S h o r t- R u n P u b lic I n v e s tm e n t 11 / 2 9
M echanism s ► F ro m p u b lic c a p ita l to p riv a te c a p ita l K G t ^ K , L, Y t ^ K G t ► (1) C om plem entarity between private factors, ( K , L), and public capital, K G, in Cobb-Douglas production function ► (2) GI proportional to o u tp u t F ro m c a p ita l a c c u m u la tio n K , K G ► t to te c h n o lo g y a d o p tio n ► (3) A non-convex adoption cost 4 □ = ► - 3 1 = 0י a o A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c ts o f S h o r t- R u n P u b lic I n v e s tm e n t 1 2 / 2 9
C h a ra cte riza tio n M u ltip le S te a d y S ta te s ► D enote fra c tio n o f H firm s as m e [0 ,1 ] D efine A l־ l(m ss) as A 7 r(m ss) evaluated a t steady state w ith m = mss ► P ro p o s itio n The model has two stable deterministic steady states mss e { 0 , 1 } if i) A l־ l(m ss) is increasing in mss and ii) A f l ( l ) > 0 > A fl(O ). ► i) requires m oderate social IRS: 1 — 9k — > e t> ן0ך^ ► ii) non-convex cost creates no deviatio n in centive and su pp o rts tw o stable steady states
C h a ra cte riza tio n M u ltip le S te a d y S ta te s high te ch n o lo g y, Public capital, K Mass of firms operating A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n I m p a c t s o f S h o r t - R u n P u b lic In v e s t m e n t 1 4 / 2 9
II. C a lib ra tio n and A ssessm ents A le x a n d r K o p y t o v a n d H a o tia n X ia n g M A G : L o n g - R u n Im p a c ts o f S h o r t- R u n P u b lic In v e s t m e n t
Recommend
More recommend
