Transcript 投影片 1 - National Chung Cheng University

Eric C. Wang
National Chung Cheng University, Taiwan
Eskander Alvi
Western Michigan University, U.S.A.
Eurasian Economic Review, Spring 2011, 1(1)
Economics, CCU
03-2011
Motivation
In 2008 and 2009, a severe world-wide economic recession
was experienced.
Many countries adopted the government expenditure approach
to stimulate the economy and to raise GDP.
C-voucher-2009.doc
Interesting remarks
If different governments spend same amount of incremental
expenditure (ΔG), will they create same amount of increase in
GDP (ΔGDP)?
Do governments perform equally well in managing their public
expenditure?
Initiative Concepts
Two major variables that will brings about differences
in the performance of government expenditure among
countries.
1. Government expenditure multiplier: mpc, mpi,
mpm, marginal tax rate.
2. Macro-management ability of the government.
Purposes
1. To measure the relative performance of government
spending of 7 Asian countries.
2. To investigate the factors that could influence government
performance.
Japan, Singapore, Taiwan, Hong Kong,
Malaysia, Thailand, and Korea.
1986 - 2007.
Data Envelopment Analysis (DEA)
Extreme Bounds Analysis (EBA)
associated with Truncated Tobit regression
Theoretical Background
GDP = Y = C + I + G + (X-M)
ΔY = ΔC +ΔI +ΔG +Δ(X-M)
mG = ΔY /ΔG = 1/ [1-(mpc+mpi)(1-t)]
mG varies from country to country, from time to time.
Concept of production
In the short-run, mG is beyond government control.
Government is to choose an amount of ΔG to reach its goal of
increase in GDP.
ΔY can be generated by government spending ΔG and
multiplier mG .
In the long-run, a trade-off between ΔG and mG is possible.
Empirical Background
DEA method
Farrell’s (1957)
Charnes, Cooper, and Rhodes (1978): CRTS
Banker, Charnes, and Cooper (1984): VRTS
∆G /∆GDP
P
R
Q
0
mG /∆GDP
DEA method applied in government sector:
Lovell, et al. (1995)：output-oriented DEA, policies on real
GDP per capita, inflation, employment, trade balance of 19
OECD.
Yaisawarng (2002)：a DEA scheme assess the efficiency of
government divisions; allocate budget according to efficiency.
Leightner (2002)：output-oriented DEA, government
spending and GDP of 24 Asian countries.
Rayp and Van De Sijpe (2007)：efficiency of government
expenditure in improving health, education, governance of 52
LDCs.
Hypotheses
(I). Private sector’s activities will affect government’s
performance in raising GDP.
ΔGDP = ΔC +ΔI +ΔG +Δ(X-M)
Besides ΔG, ΔGDP also depends on private sector’s activities,
i.e. ΔC, ΔI, and Δ(X-M).
[ΔC +ΔI +Δ(X-M)] / ΔGDP
(II). Government corruption hypothesis.
Bardhan, (1997); Treisman, (2000); Barreto (2000); Bose, et al.,
(2008); Grigor’ev and Ovchinnikov (2009)
Corruption Perception Index (CPI)：Transparency International
Hypotheses
(III). Relationship between monetary expansion and government
spending on promoting growth.
Marini and van der Ploeg (1988); Dernburg (1992); Faria (2000);
Kandil and Mirzaie (2006); Setterfield (2009).
M1 and M2 growth rates
(IV). Government size.
Barro (1991); Hansson and Henrekson (1994); Folster and
Henrekson (2001);Easterly and Rebelo (1993); Barro (1990);
Kolluri and Wahab (2007).
Government revenue / GDP
Total Taxes / GDP
Quantitative Methods
DEA Method
DEA: a non-parametric model to distinguish between efficient
and inefficient institutions.
Minimize ,
z, 
subject to
Y z  yk ,
X z   xk ,
I z = 1,
z  R+K .
yk , xk：the output and input vectors for DMU k,
z：a vector of weights,
 ：a scalar value a proportional contraction of all inputs,
The LP problem is solved K times.
EBA Method with Tobit Regression
Truncated Tobit Model
A regression model designed for data with censored nature.
Left-censored
Right-censored
Censored at both ends
Efficiency score in the range of 0 and 1
IEj,k* = f j ( Qj,k ; j , j uj,k )
Properties:
IEj,k = IEj,k*
IEj,k = 0
j = 1, …, N (countries)
k = 1, …, K (years)
if IEj,k* > 0
if IEj,k*  0
IEj,k：country j’s observed inefficiency scores for year k based on
DEA results,
IEj,k*：latent score value,
Qj,k ：vector of r factors influencing government efficiency for
country j in year k,
j ：vector of coefficients,
j ：a parameter to be estimated,
uj,k：disturbance term.
Extreme-Bounds-Analysis (EBA)
Leamer (1983, 1985);
Levine and Renelt (1992), etc.
Core: Varying the subset of control variables included in the
regression to find the widest range of coefficient estimates on
the variables of interest that standard hypothesis tests do not
reject.
W = i I + m M + z Z +u
W: the inefficiency scores
I: always included variables
M: variables of primary interest
Z: a subset of macro-variables
Extreme Bound:
The group of Z-variables that produces the maximum
(minimum) value of m, plus two standard errors.
Upper bound, Lower bound
(1) If m remains significant and has the same sign within the
extreme bounds, the result is referred to as “robust”.
(2) If the coefficient does not remain significant or if the
coefficient changes sign, then the result is seen as “fragile”.
Major Z-variables
1. GDP per capita: Levine and Renelt, 1992; Saleh and Harvie, 2005
2. Secondary school enrollment rate: Mankiw et al. 1992; Barro, 1991
3.Unemployment rate: Young and Pedregal, 1999
4.Changes in GDP deflator: Neyapti, 2003
5.Interest rate: Cebula, 2003
6.Private credit / GDP
7.Liquid liability / GDP ratio: Polokangas, 1993
8.Saving rate: Evans and Karras, 1996
9.Government debt / GDP: Saleh and Harvie, 2005
10. Non-Agricultural share in GDP
Data and Empirical Results
Data: 7 countries, 1986-2007, Table 1.
Estimation on Relative Efficiency Scores
Since ΔG has both short-term & long-term effects on ΔGDP,
we use ΔGDPt+1, ΔGDPt+2, and ΔGDPt+3 as outputs.
Table 2
Preliminary Tobit Regression
Δ(C+I+X-M)/ΔGDP as the I-variable
The effect of recession on government performance is included.
Table 3： 4 Tobit regressions
1. The coefficients of the term Δ(C+I+X-M)/ΔGDP significantly
negative.
2. Corruption Perception Index (CPI) significantly negative.
3. M2 growth rate holds a more significantly positive relationship .
Table 4 identical regressors plus country-dummy variables.
Table 5 using all I, M and Z-variables.
Robustness Tests using EBA Method
Table 6.
Robust
1. Δ(C+I+X-M)/ΔGDP significantly negative.
2. Corruption Perception Index (CPI) significantly negative.
3. M2 growth rate significantly positive.
Fragile
1. M1 growth rate.
2. Government Revenue / GDP.
3. Government Taxes /GDP.
Thank You