This paper examines the efficiency in resource allocation in China. We estimate production functions at the provincial level and use these functions to compute time series for marginal products of capital and labor. We found that dispersion in the marginal product of capital declined from 1970 to 1984 and then became stable afterward, whereas the dispersion in the marginal product of labor declined initially but the trend has been reversed since 1993. We argue that this reversal may indicate any of the following: (1) policy-driven labor migration adding to labor market inefficiency; (2) the presence of increasing returns in labor; and (3) both capital and labor having become mobile since 1993.

Using the Ramsey-Cass-Koopmans model with heterogeneous agents, this note presents the explicit relationship between the individual's asset holding and the aggregate capital stock. With the aid of this relationship, is examined the dynamics of income distribution as the economy expands. Finally, some examples are presented, contrary to the conjecture made in Li, Xie, and Zou (2000), showing that the income can still improve over time, even when the aggregate production function is convex.

This paper extends the Barro (1990) growth model with one aggregate government spending and one flat income tax to include federal and local public consumption, federal and local public capital formation, federal and local taxes, and federal transfers to locality. It derives the rate of endogenous growth and examines how the growth rate and welfare respond to changes in federal taxes, local taxes, and federal transfers.

This study examines capital accumulation, military spending, arms accumulation, and output growth in a stochastic endogenous growth model. The analysis shows that higher (lower) growth in foreign military spending leads to faster (slower) economic growth in the home country if the home country¡¯s intertemporal substitution elasticity in consumption is smaller (larger); but more volatility in foreign military spending can lead to higher economic growth in the home country when its intertemporal substitution elasticity is large. In addition, shocks to output production may stimulate economic growth.

In this paper, we consider social status, the spirit of capitalism, fiscal policies, and asset pricing in a stochastic model of growth. With specific assumptions on the production technology, preferences, and stochastic shocks, we derive the explicit solutions to the growth rates of consumption and savings and equilibrium returns on all assets. We further demonstrate how fiscal policies, the spirit of capitalism, and stochastic shocks affect growth, asset pricing, and welfare.

This paper sets up a theoretical model linking the growth rate of the economy to the growth rate and volatility of different government expenditures. On a theoretical basis, it is found that volatility in government spending can be positively or negatively associated with economic growth depending on the intertemporal elasticity in consumption. On an empirical basis, it is rather surprising to find no association between growth in capital expenditure and output growth, whereas growth in current expenditure seems to stimulate output growth. In particular, growth in transportation and communication seems to have a negative effect on output growth. It is also very interesting to find that the rises in the volatility in the growth of general public services, transportation, and communication have a positive effect on output growth.

In this paper, we study the optimal choices of the federal income tax, federal transfers, and local taxes in a dynamic model of capital accumulation and with explicit gamestructure s among multipleprivateage nts, multiplelocal governments, and the federal government. In general, the optimal local property tax is zero if the local property tax is constrained to be nonnegative, whereas the optimal local consumption tax is always positive. When the local consumption tax is chosen optimally, the federal income tax can be either positive or negative. For most reasonable parameter values, our numerical calculations have shown that with a positive local consumption tax there exists a reverse transfer from local governments to the federal government.

This paper presents an infinite-horizon model of optimal capital accumulation with the social-status concern and the cash-in-advance constraint. When the cash-in-advance constraint applies to both consumption and investment, money is not superneutral. If only consumption is subject to the cash-in-advance constraint, inflation increases capital accumulation.

This paper analyzes the long-run effects and short-run effects of foreign aid on the domestic economy by using the Hamilton system and Laplace transform. It is found that an increase in the foreign aid has no long-run effect on the foreign borrowing, domestic capital accumulation and the foreign direct investment in the home country, but increases the steady-state consumption level the same amount. However, the short-run analysis presents that increasing foreign aid does not affect the initial consumption level and the initial consumption increase rate; but it affects the initial savings positively.

In an infinite-horizon model with endogenous time preferences, foreign aid, foreign borrowing, and domestic capital accumulation, a permanent increase in foreign aid leads to a reduction in long-run capital accumulation, a rise in domestic consumption, and an increase in foreign borrowing. Short-run analysis shows that an initial increase in foreign aid leads to a rise in investment, and a reduction in consumption and external borrowing. On the other hand, a temporal increase in foreign aid results in an increase in consumption and foreign borrowing, and a reduction in investment.