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This paper focuses on the trade-off faced by governments in deciding the allocation of public expenditures between productivity-enhancing public infrastructures and utility-enhancing public consumption. From the modeling point of view, the paper augments a standard New Open Economy Macroeconomics (NOEM) model by introducing productive public infrastructures. The results show that a temporary increase in the domestic stock of public capital financed by a reduction in public consumption reduces domestic welfare in the short run because the temporary gains from higher productivity do not compensate domestic residents for the utility loss due to lower public consumption. If the policy shift is permanent domestic utility is likely to increase, while foreign residents suffer short-run welfare losses but benefit from welfare gains in the long run. This analysis implies that a permanent domestic reallocation of public spending might result in a virtuous global technological cycle.

Expenditures, Public -- Econometric models. --- Expenditures, Public. --- Infrastructure (Economics) -- Econometric models. --- Infrastructure (Economics). --- Macroeconomics --- Public Finance --- Production and Operations Management --- Macroeconomics: Consumption --- Saving --- Wealth --- National Government Expenditures and Related Policies: General --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Public finance & taxation --- Consumption --- Private consumption --- Expenditure --- Expenditure composition --- Capital productivity --- Economics --- Expenditures, Public --- Finance, Public.

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This paper shows that high energy subsidies and low public social spending can emerge as an equilibrium outcome of a political game between the elite and the middle-class when the provision of public goods is subject to bottlenecks, reflecting weak domestic institutions. We test this and other predictions of our model using a large cross-section of emerging markets and low-income countries. The main empirical challenge is that subsidies and social spending could be jointly determined (e.g., at the time of the budget), leading to a simultaneity bias in OLS estimates. To address this concern, we adopt an identification strategy whereby subsidies in a given country are instrumented by the level of subsidies in neighboring countries. Our Instrumental Variable (IV) estimations suggest that public expenditures in education and health were on average lower by 0.6 percentage point of GDP in countries where energy subsidies were 1 percentage point of GDP higher. Moreover, we find that the crowding-out was stronger in the presence of weak domestic institutions, narrow fiscal space, and among the net oil importers.

Energy policy -- Developing countries. --- Expenditures, Public -- Econometric models. --- Power resources -- Subsidies -- Case studies. --- Social policy -- Economic aspects -- Developing countries. --- Business & Economics --- Industries --- Macroeconomics --- Public Finance --- Single Equation Models --- Single Variables: Cross-Sectional Models --- Spatial Models --- Treatment Effect Models --- Single Equation Models: Single Variables: Instrumental Variables (IFV) Estimation --- Social Choice --- Clubs --- Committees --- Associations --- Taxation and Subsidies: Externalities --- Redistributive Effects --- Environmental Taxes and Subsidies --- Public Goods --- Energy: Demand and Supply --- Prices --- National Government Expenditures and Related Policies: General --- Fiscal Policy --- Macroeconomics: Consumption --- Saving --- Wealth --- Energy industries & utilities --- Public finance & taxation --- Energy subsidies --- Expenditure --- Fiscal space --- Oil prices --- Consumption --- Fiscal policy --- National accounts --- Expenditures, Public --- Economics --- United Arab Emirates

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This paper analyzes the empirical relationship between fiscal policy and the trade account. Research prior to this paper did not consider that the components of private and public demand in the import demand equation exhibit different elasticities. Using pooled mean group estimation for annual panel data of the G-7 countries for the years 1970 through 2002, we provide empirical evidence that the composition of overall demand-i.e., the distribution among public demand, private demand, and export demand-has an impact on the magnitude of the trade account deficit.

Balance of trade -- Econometric models. --- Demand (Economic theory) -- Econometric models. --- Electronic books. -- local. --- Expenditures, Public -- Econometric models. --- Fiscal policy -- Econometric models. --- Imports -- Econometric models. --- Commerce --- Business & Economics --- Commerce - General --- Balance of trade --- Demand (Economic theory) --- Expenditures, Public --- Fiscal policy --- Imports --- Econometric models. --- Tax policy --- Taxation --- Appropriations and expenditures --- Government appropriations --- Government expenditures --- Government spending --- Public expenditures --- Public spending --- Spending, Government --- Deficits, Trade --- Trade, Balance of --- Trade balance --- Trade deficits --- Trade surpluses --- Surpluses, Trade --- Government policy --- International trade --- Economic policy --- Finance, Public --- Public administration --- Government spending policy --- Supply and demand --- Production (Economic theory) --- Balance of payments --- Mercantile system --- Payment --- Exports and Imports --- Investments: General --- Macroeconomics --- Public Finance --- Trade: General --- National Government Expenditures and Related Policies: General --- Macroeconomics: Consumption --- Saving --- Wealth --- Investment --- Capital --- Intangible Capital --- Capacity --- International economics --- Public finance & taxation --- Expenditure --- Private consumption --- Private investment --- Exports --- Consumption --- Economics --- Saving and investment --- Japan