WORKING PAPERS by Sarantis Kalyvitis

Capital Maintenance and Depreciation over the Business Cycle (with A. Albonico and E. Pappa). Abstract: This paper develops and estimates a stochastic general equilibrium model with capital maintenance, which affects endogenously the depreciation rate of capital. The estimate of maintenance series is found to track survey-based measures for Canada quite closely and to generate the procyclical pattern of maintenance observed in the data. We use it to infer the time profile of equipment capital depreciation in Canadian and US manufacturing. Contrary to existing estimates, the depreciation rate is estimated to be volatile and highly procyclical over that last 50 years in both countries.

On the Productivity Effects of Public Capital Maintenance: Evidence from U.S. States (with E. Vella). Abstract: This paper assesses the productivity effects of infrastructure's operations and maintenance (O&M) spending by state and local governments in the 48 contiguous U.S. states over the period 1978-2000. We explicitly account for transboundary spillovers of capital and O&M spending and follow a semiparametric methodology that allows us to estimate state-specific output elasticities. We find strong evidence that in all 48 states the cross-state spillover effects of O&M outlays on productivity exceed their within-state impacts and that they are substantially higher than the spillover effects of capital expenditures.

Optimal Fiscal Policy with Endogenous Time Preference (with E. Dioikitopoulos). Abstract: This paper studies the role of Ramsey taxation under the assumption that the individual rate of time preference is determined by the publicly-provided social level of education. We show how intertemporal complementarities of aggregate human capital can generate multiple equilibria and we examine the role of endogenous fiscal policies in equilibrium selection. Our analysis implies a lower optimal government size due to the effect of human capital on time preference.

Green Spending Reforms, Growth and Welfare with Endogenous Subjective Discounting (with E. Vella and E. Dioikitopoulos). Technical Appendix to the paper Abstract: This paper studies optimal fiscal policy, in the form of taxation and the allocation of tax revenues between infrastructure and environmental investment, in a general-equilibrium growth model with endogenous subjective discounting. A green spending reform, defined as a reallocation of government expenditures towards the environment, can procure a double dividend by raising growth and improving environmental conditions, although the environment does not impact the production technology. Also, endogenous Ramsey and growth-maximizing policies eliminate the possibility of an `environmental and economic poverty trap'. Finally, we examine the optimal response of the Ramsey government to greener preferences.

Revisiting the 'Productivity-Hours' Puzzle in the RBC Paradigm: The Role of Investment Adjustment Costs (with A. Albonico and E. Pappa). Abstract: Conventional RBC models have been heavily criticized for their inability to generate the estimated negative correlations of hours and productivity in response to technology shocks (`productivity-hours puzzle'). In this paper we show that by just enhancing the standard framework with investment adjustment costs can resolve the `productivity-hours puzzle'.

Political Competition and the Growth Impact of Exchange Rate Regimes: An Empirical Investigation (with I. Skotida). Abstract: Empirical studies on the growth impact of exchange rate regimes have reported mixed results on the sign and significance of this effect. The present paper introduces in this literature the claim by Acemoglu et al. (2005) that economic development is shaped by conflicts between social groups with differential political power. To this end, we examine whether the growth effect of exchange rate regimes depends on domestic political competition. We test this prediction using a panel dataset of 160 countries that covers the period 1975-2006, taking into account the endogeneity of the exchange rate regime choice. We find that fixed exchange rate regimes are directly associated with higher growth, but floating exchange rate regimes are more beneficial to growth as political competition increases.

Misused Financial Aid, Political Aid, and Regime Survival: Theory and Evidence from 70 Aid Recipients (with I. Vlachaki). Abstract: This paper investigates the effects of foreign aid on the survival of political regimes by distinguishing between financial aid, which can be misused by the ruling political party in order to remain in power at the expense of the productive capacity of the country, and political aid, which enhances the probability of regime alteration. To this end, we construct a simple model for the behavior of the ruling party and we derive a number of testable hypotheses. We investigate empirically these effects using data from 70 aid-recipient countries covering the period 1984-2002 and we find evidence that support the central predictions of the model.

April 22, 2013