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A simple model incorporating rent-seeking into the standard neoclassical model of capital accumulation is presented. It embodies the idea that the performance of an economy depends on the efficiency of its institutions. It is shown that welfare is positively affected by the institutional efficiency, although output is not necessarily so. It is also shown that an economy with a monopolistic rent-seeker performs better than one with a competitive rent-seeking industry. Download Paper
This paper explores the distortions on the cost of education, associated to government policies, as an additional determinant of cross-country income differences. Human capital follows a Mincerian approach and accumulation of skills is done at school) outside the labor market. There are two sectors, one producing goods and the other providing educational services. The model is calibrated and simulated for 122 economics. We find that human capital taxation has a relevant impact on incomes, which is amplified by its indirect effect on returns to physical capital. For comparable values, distortions to the latter have an overall effect on incomes smaller than human capital taxation. Life expectancy plays an important role in determining long-run output: the expansion of the population working life increases the present value of the flow of wages, which induces further human capital investment and raises incomes. A general conclusion, however, is that there is not a single cause for the poverty of nations. Some are poor because of very low productivity, and others because of excess taxation on factors. Download Paper
This paper demonstrates that the applied monetary models - the Sidrauski-type models and the cash-in-advance models, augmented with a banking sector that supplies money substitutes services - imply trajectories which are Pareto-Optimum restricted to a given path of the real quantity of money. As a consequence, three results follow. First, Bailey's formula to evaluate the welfare cost of inflation is indeed accurate, if the long-run capital stock does not depend on the inflation rate and if the compensate demand is considered. Second, the relevant money demand concept for this issue - the impact of inflation on welfare - is the monetary base. Third, if the long-run capital stock depends on the inflation rate, this dependence has a second-order impact on welfare, and, conceptually, it is not a distortion from the social point of view. These three implications moderate some evaluations of the welfare cost of the perfect predicted inflation. Download Paper