Monday, June 07, 2010

Papers to Read

Global effects of fiscal stimulus during the crisis

Charles Freedman, Michael Kumhof, Douglas Laxton, Dirk Muir & Susanna Mursula
Journal of Monetary Economics, forthcoming

Abstract: The IMF's Global Integrated Monetary and Fiscal Model is used to compute short-run multipliers of fiscal stimulus measures and long-run crowding-out effects of higher debt. Multipliers of two-year stimulus range from 0.2 to 2.2 depending on the fiscal instrument, the extent of monetary accommodation and the presence of a financial accelerator mechanism. A permanent 10 percentage point increase in the U.S. debt to GDP ratio raises the U.S. tax burden and world real interest rates in the long run, thereby reducing U.S. and rest of the world output by 0.3 to 0.6 percent and 0.2 to 0.3 percent, respectively.

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Social Welfare Expenditures in the United States and the Nordic Countries: 1900-2003

Price Fishback
NBER Working Paper, May 2010

Abstract: The extent of social expenditures in the U.S. and the Nordic Countries is compared in the early 1900s and again in the early 2000s. The common view that America spends much less on social welfare than the Nordic countries does not survive closer inspection when we consider the differences in the structures of social expenditures. The standard comparison examines gross social expenditures. After adjustments for direct and indirect taxes paid, the net social expenditures in the Nordic countries are much closer to American levels. Inclusion of mandatory and private social expenditures raises the American share of GDP devoted to social expenditures to rank among the middle of the Nordic countries. Per capita net public social expenditures in the U.S. rank behind only Sweden. Add in the private spending, and per capita spending in the U.S. is higher than in all of the Nordic countries. Finally, I document the enormous diversity across time and place in public social expenditures in the U.S. in the early 1900s and circa 1990.

(Tyler has already discussed this one a bit...)

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Capitalism and freedom?

Frederic Pryor
Economic Systems, March 2010, Pages 91-104

Abstract: This essay tests Milton Friedman's conjecture that capitalism is a necessary condition for political freedom. For the decade around 2000 indices of the degree of capitalism and the degree of political freedom are highly correlated and provide plausibility for Friedman's conjecture. In looking at changes over time in the nineteenth century, however, the analysis refutes Friedman's conjecture. These apparently contradictory results are reconciled by showing that both capitalism and freedom are related to such variables as the educational level of the population so that, although not causally tied, they are correlated in a cross-national comparison.

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Is H.A. Simon a theoretician of decentralized planning? A comparison with
F.A. Hayek on planning, market, and organizations

Stefano Fiori
Constitutional Political Economy, June 2010, Pages 145-170

Abstract: Herbert A. Simon acknowledged Friedrich A. Hayek as a founder of the notion of bounded rationality; yet Simon considered Hayek’s perspective incomplete, and, more in general, their views on market mechanisms, planning, and organization exhibit considerable differences. The comparison between these authors sheds light on Simon’s interpretation of planning, which emerges within his theory of organization (and not in traditional debates on socialism). Contrary to Hayek, he maintained that planning, in specific circumstances, is more advantageous than the market; and in both administration and organization, it involves a decentralized structure based on near independent sub-units. Decentralization of decisions also appears in social planning, which evolves through continuous interactions among
planners (i.e., agents and institutions), and it is a process connoted by the absence of “fixed goals”. Finally, Simon defined modern economies more in terms of “organizational economies” than in those of “market economies” and this highlights a further difference with respect to the Austrian economist. This leads to analysis of the nature of organizations as hierarchical and “near-decomposable” structures, which refers to Simon’s theory of complexity and gives an epistemological explanation to the relation between centralization and decentralization.