Growth and Public Debt: What Are the Relevant Trade-Offs?, Kazuo Nishimura, Carine Nourry, Thomas Seegmuller et Alain Venditti, Journal of Money, Credit and Banking, Volume 51, Issue 2-3, pp. 655-682, 2019

The interplay between growth and public debt is addressed considering a Barro-type (1990) endogenous growth model where public spendings are financed through taxes on income and public debt. The government has a target level of public debt relative to GDP, and the long-run debt-to-GDP ratio is used as a policy parameter. We show that when debt is a large enough proportion of GDP, two distinct balanced-growth paths (BGPs) may coexist, one being indeterminate. We exhibit two types of important trade-offs associated with self-fulfilling expectations. First, we show that the lowest BGP is always decreasing with respect to the debt-to-GDP ratio while the highest one is increasing. Second, we show that the highest BGP, which provides the highest welfare, is always locally indeterminate while the lowest is always locally determinate. Therefore, local and global indeterminacy may arise and self-fulfilling expectations appear as a crucial ingredient to understand the impact of debt on growth, welfare, and macroeconomic fluctuations. Finally, a simple calibration exercise allows to provide an understanding of the recent experiences of many OECD countries.

How crucial are preferences for non-tradable goods and cross-country sectoral TFP gap for integration?Marion Davin, Karine Gente et Carine Nourry, Journal of Macroeconomics, Volume 57, pp. 166-181, 2018

This paper deals with the effects of economic integration in a 2x 2x 2 model of overlapping generations. We distinguish between a non-tradable and a tradable sector which use human and physical capital. We show that the preference for non-tradable consumption in total consumption expenditure and sectoral productivities are crucial factors to determine which country does benefit from integration in terms of economic growth. Short-run and long-run effects of integration may differ, especially when countries are heterogeneous and when there exist high cross border externalities in education. Moreover, an impatient country may lose to integration when it has a comparative advantage in the tradable sector and/or when the preference for non-tradable goods is high.

Sunspot Fluctuations in Two-Sector Models with Variable Income EffectsFrédéric Dufourt, Kazuo Nishimura, Carine Nourry et Alain Venditti, In: Studies in Economic Theory, K. Nishimura, A. Venditti et N. C. Yannelis (Eds.), 2017, Volume 31, pp. 71-96, Springer-Verlag, 2017

We analyze a version of the Benhabib and Farmer (1996) two-sector model with sector-specific externalities in which we consider a class of utility functions inspired from the one considered in Jaimovich and Rebelo (2009) which is flexible enough to encompass varying degrees of income effect. First, we show that local indeterminacy and sunspot fluctuations occur in 2-sector models under plausible configurations regarding all structural parameters—in particular regarding the intensity of income effects. Second, we prove that there even exist some configurations for which local indeterminacy arises under any degree of income effect. More precisely, for any given size of income effect, we show that there is a non-empty range of values for the Frisch elasticity of labor and the elasticity of intertemporal substitution in consumption such that indeterminacy occurs. This contrasts with the results obtained in one-sector models in both Nishimura et al. (2009), in which it is shown that indeterminacy cannot occur under either GHH and KPR preferences, and in Jaimovich (2008) in which local indeterminacy only arises for intermediary income effects.

Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many AgentsKazuo Nishimura, Carine Nourry, Thomas Seegmuller et Alain Venditti, Macroeconomic Dynamics, Volume 20, Issue 02, pp. 504-524, 2016

We introduce public spending, financed through income taxation, into the Ramsey model with heterogeneous agents. Public spending as a source of welfare generates more complex dynamics. In contrast to previous contributions focusing on similar models but with wasteful public spending, limit cycles through Hopf bifurcation and expectation-driven fluctuations appear if the degree of capital–labor substitution is high enough to be compatible with capital income monotonicity. Moreover, unlike frameworks with a representative agent, our results do not require externalities in production and are compatible with a weakly elastic labor supply with respect to wage.

On the (De)Stabilizing Effect of Public Debt in a Ramsey Model with Heterogeneous AgentsKazuo Nishimura, Carine Nourry, Thomas Seegmuller et Alain Venditti, International Journal of Economic Theory, Volume 11, Issue 1, pp. 7-24, 2015

We introduce public debt in a Ramsey model with heterogenous agents and a public spending externality affecting utility which is financed by income tax and public debt. We show that public debt considered as a fixed portion of GDP can have a stabilizing or destabilizing effect depending on some fundamental elasticities. When the public spending externality is weak and the elasticity of capital labor substitution is low enough, public debt can only be destabilizing, generating damped or persistent macroeconomic fluctuations. Whereas when the public spending externality and the elasticity of capital labor substitution are strong enough, public debt can be stabilizing, driving to monotone convergence an economy experiencing damped or persistent fluctuations without debt.

Should a country invest more in human or physical capital?Marion Davin, Karine Gente et Carine Nourry, Mathematical Social Sciences, Volume 76, Issue C, pp. 44-52, 2015

Should a country invest more in human or physical capital? Using a two-sector overlapping generations setting with endogenous growth driven by human capital accumulation, we prove that relative factor intensity between sectors drastically shapes the welfare analysis: two identical laissez-faire economies with different sectoral capital shares may generate physical capital excess or scarcity, with respect to the optimum. The design of optimal policy depends on the sectoral properties and the social planner discount rate.

External constraints and endogenous growth: Why didn't some countries benefit from capital flows?Karine Gente, Miguel A. Leon-Ledesma et Carine Nourry, Journal of International Money and Finance, Volume 56, pp. 223-249, 2015

Empirical evidence on the growth benefits of capital inflows is mixed. The growth benefits accruing from capital inflows also appear to be larger for high savings countries. We explain this phenomenon using an {OLG} model of endogenous growth in open economies with borrowing constraints that can generate both positive and negative growth effects of capital inflows. The amount an economy can borrow is restricted by an endogenous enforcement constraint. In our setting, with physical capital and a pay-as-you-go pensions system, the steady state is unique. However, it can either be constrained or unconstrained. In a constrained economy, opening up to equity and {FDI} inflows can be bad for growth because it makes the domestic interest rate too low, which endogenously tightens borrowing constraints. Agents decrease savings and investment in productivity-enhancing activities resulting in lower growth. Results are reversed in an unconstrained economy. We also provide a quantitative analysis of these constraints and some policy implications.

Childhood preventive care, adult healthcare and economic growth: The role of healthcare financingMaame Esi Woode, Carine Nourry et Bruno Ventelou, Economics Letters, Volume 124, Issue 1, pp. 41-47, 2014

We analyze the impact of healthcare financing on economic growth, focusing on the issue of the joint public-private financing of healthcare (co-payment). We use an overlapping-generations model with endogenous growth based on health human capital accumulation, where families pay for childhood preventive care and the government can either fully finance or co-finance adulthood curative care. From a growth maximizing perspective, distortionary taxes give an advantage to co-financing. Nevertheless, we prove that, if agents are assumed to be heterogeneous in preferences, full financing can become the best option.

Population growth in polluting industrializationKarine Constant, Carine Nourry et Thomas Seegmuller, Resource and Energy Economics, Volume 36, Issue 1, pp. 229-247, 2014

Recently, many contributions have focused on the relationship between capital level, growth and population dynamics, introducing fertility choice in macro-dynamic models. In this paper, we go one step further highlighting also the link with pollution. We develop a simple overlapping generations model with paternalistic altruism according to wealth and environmental concerns. One can therefore explain a simultaneous increase in capital intensity, population growth and pollution, namely a polluting industrialization. We show in addition that a permanent productivity shock, possibly associated to technological innovations, promotes such a polluting development process, escaping a trap where the economy is relegated to low levels of capital intensity, population growth and pollution.

Aggregate instability under balanced-budget consumption taxes: A re-examinationCarine Nourry, Thomas Seegmuller et Alain Venditti, Journal of Economic Theory, Volume 148, Issue 5, pp. 1977-2006, 2013

We re-examine the destabilizing role of balanced-budget fiscal policy rules based on consumption taxation. Using a one-sector model with infinitely-lived households, we consider a specification of preferences derived from Jaimovich (2008) [14] and Jaimovich and Rebelo (2009) [15] which is flexible enough to encompass varying degrees of income effect. When the income effect is not too large, we show that there exists a Laffer curve, which explains the multiplicity of steady states, and that non-linear consumption taxation may destabilize the economy, promoting expectation-driven fluctuations, if the elasticity of intertemporal substitution in consumption is sufficiently larger than one and the tax rate is counter-cyclical with respect to consumption. Numerical illustrations also show that consumption taxation may be a source of instability for most OECD countries for a wide range of structural parametersʼ configurations. We finally prove the robustness of our conclusions if we consider a discrete-time setup.