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  1. 1

    U.S. money demand: surprising cross-sectional estimates.

    Sala-i-Martin X; Mulligan CB

    New Haven, Connecticut, Yale University, Economic Growth Center, 1992 Sep. 60 p. (Center Discussion Paper No. 671)

    We estimate money demand functions using cross-sections of U.S. states over the period 1929-1990. We arrive at a number of interesting conclusions: First, our estimates of the income elasticity lie between 1.3 and 1.5, significantly above one. Second, money demand is a stable function over an impressive sample period, 1929-1990. Third, income per capita is a better scale variable than consumption. And finally, after having been fairly constant between 1950 and 1980, the rate of technological progress (which determines the amount of money demanded for given incomes, price levels and interest rates) accelerated substantially over the 1980s. (author's)
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  2. 2

    Public finance in models of economic growth.

    Barro RJ; Sala-i-Martin X

    New Haven, Connecticut, Yale University, Economic Growth Center, 1991 Jul. 33 p. (Center Discussion Paper No. 640)

    The recent literature on endogenous economic growth allows for effects of fiscal policy on long-term growth. If the social rate of return on investment exceeds the private return, then tax policies that encourage investment can raise the growth rate and levels of utility. An excess of the social return over the private return can reflect learning-by-doing with spillover effects, the financing of government consumption purchases with an income tax, and monopoly pricing of new types of capital goods. Tax incentives for investment are not called for if the private rate of return on investment equals the social return. This situation applies in growth models if the accumulation of a broad concept of capital does not entail diminishing returns, or if technological progress appears as an expanding variety of consumer products. In growth models that incorporate public services, the optimal tax policy hinges on the characteristics of the services. If the public services are publicly-provided private goods, which are rival and excludable, or publicly-provided public goods, which are non-rival and non- excludable, the lump-sum taxation is superior to income taxation. Many types of public goods are subject to congestion, and are therefore rival but to some extent non-excludable. In these cases, income taxation works approximately as a user fee and can therefore be superior to lump-sum taxation. In particular, the incentives for investment and growth are too high if taxes are lump sum. We argue that the congestion model applies to a wide array of public expenditures, including transportation facilities, public utilities, courts, and possibly national defense and police. (author's)
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