Full Citation
Title: Essays in macroeconomics
Citation Type: Dissertation/Thesis
Publication Year: 2012
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Abstract: This dissertation considers two distinct issues in macroeconomics. The fi rst and second chapters look at the e ffects of changes in tax policy on productivity of an economy from an empirical and theoretical stand point. The third chapter concerns the implications of cross-national migration for long-run growth and welfare. In the fi rst chapter, I analyze the eff ects of tax policy changes on US total factor productivity (TFP). A substantial fraction of the income diff erences between countries can be explained by diff erences in TFP. Thus it is important to know the e ffects of policy changes on TFP. This is the first study that looks at the effect of changes in tax policy on TFP. Data on tax shocks comes from the sources used by Romer and Romer (2009). Empirical estimates show that a 1 percent permanent exogenous rise in total taxes lowers TFP by up to 1.75 percent in the long run. The drop in output associated with the increase in taxes is between 2 and 3 percent. Thus the change in TFP explains most of the movement in output that follows a tax change. Individual income taxes have a strong and signifi cant eff ect on TFP whereas corporate income taxes do not signi ficantly a ffect TFP or most other macroeconomic variables. The analysis also shows that the e ffects of tax changes on output and on observable inputs have become smaller over time while the eff ects on TFP and on wages have become larger over time. In the second chapter, I build a dynamic stochastic general equilibrium model to explain the dynamic macroeconomic effects of tax changes. The model has two key features: learning-by-doing at the worker level and endogenous TFP evolution whereby TFP growth depends on investment and human capital. When I calibrate the learning-by-doing and TFP evolution processes using micro evidence on the eff ect of human capital accumulation on productivity, the e ffect of taxes on TFP in the model is substantially less elastic than in the data. When I instead select parameters to match key aggregate moments, the estimated model is successful in accounting for the qualitative and quantitative nature of the empirical results. However, this requires stronger learning-by-doing than seems reasonable given the microeconomic evidence. I argue that the gap between the model and data may arise because some of the tax changes labeled as exogenous by Romer and Romer (2009) are in fact endogenous in which case the empirical results would overstate the true eff ects of tax changes on TFP. The diff erence between model and data may also arise because of the model not being rich enough. The model drives its components from both the business cycle and endogenous growth literature, thus the gap between model and data perhaps shows that the literature is not adequate in explaining observed patterns in the data. The third chapter characterizes the e ffect of the much-discussed "brain drain" - the migration of relatively skilled workers from less to more advanced economies - on long-run development in the workers' home nation. A summary of the model is as follows: I employ a life cycle model with two countries, one poor and one rich, with endogenous migration and return migration decisions from and to the poor country. Workers working in the poor country receive wage o ffers from the rich country and decide to migrate to the rich country if the wage off er and subsequent wage growth gives them a higher lifetime utility than from staying in the poor country. The workers who migrate to the rich country have higher wage and skill growth rates than the workers in poor. The central question of this chapter is to evaluate the costs and benefi ts of a policy where the government of the poor country incentivizes the expatriates to return from the rich country to the poor country to take advantage of their superior skills that they accumulate while working in the rich country. The direct benefi t from calling back workers from the rich country is the increase in output of the poor country because of the higher skills of return migrants relative to domestic workers. The indirect benefi t to the poor country is the increase in skill level of domestic workers because of the positive externalities from the returning workers. However, every worker that is called back to work in the poor country must also be given high enough compensation so that he is indi fferent between working in the two countries. This is the cost of bringing a worker back. These costs and benefi ts determine 1) whether it is benefi cial to call expatriates back or not, and 2) which workers benefi t the country the most. Results show that the economy can gain the most by calling back workers with skill levels that are 1.28 standard deviations above the mean skill level of domestic workers. In the model, since skill is a combination of education and experience, this skill level in real life can either correspond to highly skilled young professionals or highly experienced professional or a combination of both. Calling back workers of lower skill levels will lower the gain since their experience in the rich country would not be high and hence the superior skill accumulation would be lower. Calling back workers of higher skill levels will lower the gain since the cost of calling them back would be too high.
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Authors: Hussain, Syed, M
Institution: University of Rochester
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Degree: Doctor of Philosophy
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Pages: 176
Data Collections: IPUMS USA
Topics: Migration and Immigration
Countries: United States