Zvi Hercowitz - Academia.edu (original) (raw)
Papers by Zvi Hercowitz
Review of Economics and Statistics, 2004
This paper studies the role of business cycles in the phenomenon of increasing government spendin... more This paper studies the role of business cycles in the phenomenon of increasing government spending/GDP ratios in the OECD countries. An empirical framework that includes both long-run and cyclical considerations in the determination of government spending is applied to panel data covering the 1975-1998 period. The main finding is that the prolonged rise in the government spending/GDP ratio is partially explained by cyclical upward ratcheting due to asymmetric fiscal behavior: the spending/GDP ratio increases during recessions and is only partially reduced in expansions. The long-run ratcheting effect is estimated as approximately 2 percent of GDP. Also analyzed are the cyclical changes in the composition of government spending (government consumption, transfers and subsidies, and capital expenditure), as well as a possible link between cyclical ratcheting and government weakness.
Tax Cuts and Economic Activity: Israel in the 2000s
Concentration of capital ownership and investment fluctuations
ABSTRACT This paper is motivated by the observation that investment tends to accelerate when outp... more ABSTRACT This paper is motivated by the observation that investment tends to accelerate when output is around trend. The model used to explain this observation is based on the capacity-constrained production setup in Hansen and Prescott (2001), where capacity is constant over time, and on capital being owned by a fraction of the agents in the economy. When capacity is reached, the capital share increases because its component from capacity ownership becomes positive. The concentration of capital ownership leads then to an acceleration of investment.generated by the desire of capital owners to smooth consumption.as well as to a deceleration of total consumption. The results from the calibrated model contribute, although only partially, to the explanation of the observed behavior. (Copyright: Elsevier)
Political Economy, Growth, and Business Cycles
This paper analyzes the implications of adding to a tax-smoothing framework the cost of deviating... more This paper analyzes the implications of adding to a tax-smoothing framework the cost of deviating upwards from a public-debt/output guideline. The implications for the dynamic paths of the tax rate, the debt/output ratio and the government spending/output ratio are derived. A simulation of the model with Israeli data suggests that Israeli fiscal behavior is consistent with the (implicit) existence of such a guideline. Some international perspective, with countries having explicit guidelines in the context of the Maastricht Treaty, is also presented.
This paper studies the role of business cycles in the phenomenon of increasing government spendin... more This paper studies the role of business cycles in the phenomenon of increasing government spending/GDP ratios in the OECD countries. Using a panel data set covering the 1975-1995 period, the main¯nding is that the prolonged rise in this ratio is linked to a cyclical bias; the spending/GDP ratio increased during recessions and stayed approximately constant during expansions. Also analyzed are the cyclical changes in the composition of government spending (goods and services, transfers and subsidies, and capital expenditure), in tax revenues, and a possible link between the cyclical bias and an index of government weakness.
This paper investigates the drastic reduction in public spending in OECD countries during the 199... more This paper investigates the drastic reduction in public spending in OECD countries during the 1990s. Using a panel data set of 18 countries, we find this adjustment to be a general OECD development, beginning in 1994, and that participation in the Maastricht Treaty or in the Stability and Growth Pact does not introduce additional effects. In the long run, this adjustment is estimated to reduce the ratio of primary government spending to output by about 4 percentage points. There is no evidence of differential adjustment in expansions or recessions. We also find that declines in interest payments on public debt are followed by increases in primary expenditures by about the same amount. The econometric framework makes it possible to compute the long-run ratios of government expenditures to GDP in the 18 OECD countries in the sample.
Macroeconomic Implication of Investment-Specific Technological Change
Hourly wages in survey micro data is usually computed as the ratio of salary to the reported numb... more Hourly wages in survey micro data is usually computed as the ratio of salary to the reported number of hours worked. This is the procedure used, for example, in the PSID (Panel Study of Economic Dynamics). Because any error in the reported number of hours translates into an opposite error in the hourly wage, it has been noted that the available micro data is likely to contain an artificial negative correlation between hours worked and hourly wages. In the labor supply literature, the usual procedure to circumvent this problem is to instrument the wage by the lagged wageassuming that the error is serially uncorrelated. Here, a direct procedure for estimating the measurement error is proposed and implemented with PSID data. The procedure is based on a signal extraction calculation using the available data on hours and wages in two subsequent years.
The macroeconomics Effects of mass Immigration to Israel
The "Embodiment" Controversy
A Migration Model with 'Zionism
American Economic Review
The role that investment-specific technological change played in generating postwar U.S. growth i... more The role that investment-specific technological change played in generating postwar U.S. growth is investigated here. The premise is that the introduction of new, more efficient capital goods is an important source of productivity change, and an attempt is made to disentangle its effects from the more traditional Hicks-neutral form of technological progress. The balanced-growth path for the model is characterized and calibrated to U.S. National Income and Product Account data. The quantitative analysis suggests that investment-specific technological change accounts for the major part of growth.
One measure of the health of the Social Security system is the difference between the market valu... more One measure of the health of the Social Security system is the difference between the market value of the trust fund and the present value of benefits accrued to date. How should present values be computed for this calculation in light of future uncertainties? We think it is important to use market value. Since claims on accrued benefits are not currently traded in financial markets, we cannot directly observe a market value. In this paper, we use a model to estimate what the market price for these claims would be if they were traded. In valuing such claims, the key issue is properly adjusting for risk. The traditional actuarial approach – the approach currently used by the Social Security Administration in generating its most widely cited numbers - ignores risk and instead simply discounts “expected†future flows back to the present using a risk-free rate. If benefits are risky and this risk is priced by the market, then actuarial estimates will differ from market value. Effec...
Capacity utilization and the real business cycle
The Role of Collaterized Household Debt in Macroeconomic Stabilization
This Paper studies the effects of mass immigration from the former USSR to Israel in the 1990s on... more This Paper studies the effects of mass immigration from the former USSR to Israel in the 1990s on the employment of the native-born. The exogeneity and the size of this inflow make it a ‘natural experiment’ of macroeconomic proportions. An open-economy macroeconomic model is used to analyse this experience, focusing on the differential entry of immigrants into the labour and
This paper analyzes the implications of adding to a tax-smoothing framework,the cost of deviating... more This paper analyzes the implications of adding to a tax-smoothing framework,the cost of deviating,upwards,from,a public-debt/output guideline. The implications for the dynamic paths of the tax rate, the debt/output,ratio and the government,spending/output,ratio are derived. A simulation,of the model,with Israeli data suggests that Israeli fiscal behavior is consistent with the (implicit) existence of such
Review of Economics and Statistics, 2004
This paper studies the role of business cycles in the phenomenon of increasing government spendin... more This paper studies the role of business cycles in the phenomenon of increasing government spending/GDP ratios in the OECD countries. An empirical framework that includes both long-run and cyclical considerations in the determination of government spending is applied to panel data covering the 1975-1998 period. The main finding is that the prolonged rise in the government spending/GDP ratio is partially explained by cyclical upward ratcheting due to asymmetric fiscal behavior: the spending/GDP ratio increases during recessions and is only partially reduced in expansions. The long-run ratcheting effect is estimated as approximately 2 percent of GDP. Also analyzed are the cyclical changes in the composition of government spending (government consumption, transfers and subsidies, and capital expenditure), as well as a possible link between cyclical ratcheting and government weakness.
Tax Cuts and Economic Activity: Israel in the 2000s
Concentration of capital ownership and investment fluctuations
ABSTRACT This paper is motivated by the observation that investment tends to accelerate when outp... more ABSTRACT This paper is motivated by the observation that investment tends to accelerate when output is around trend. The model used to explain this observation is based on the capacity-constrained production setup in Hansen and Prescott (2001), where capacity is constant over time, and on capital being owned by a fraction of the agents in the economy. When capacity is reached, the capital share increases because its component from capacity ownership becomes positive. The concentration of capital ownership leads then to an acceleration of investment.generated by the desire of capital owners to smooth consumption.as well as to a deceleration of total consumption. The results from the calibrated model contribute, although only partially, to the explanation of the observed behavior. (Copyright: Elsevier)
Political Economy, Growth, and Business Cycles
This paper analyzes the implications of adding to a tax-smoothing framework the cost of deviating... more This paper analyzes the implications of adding to a tax-smoothing framework the cost of deviating upwards from a public-debt/output guideline. The implications for the dynamic paths of the tax rate, the debt/output ratio and the government spending/output ratio are derived. A simulation of the model with Israeli data suggests that Israeli fiscal behavior is consistent with the (implicit) existence of such a guideline. Some international perspective, with countries having explicit guidelines in the context of the Maastricht Treaty, is also presented.
This paper studies the role of business cycles in the phenomenon of increasing government spendin... more This paper studies the role of business cycles in the phenomenon of increasing government spending/GDP ratios in the OECD countries. Using a panel data set covering the 1975-1995 period, the main¯nding is that the prolonged rise in this ratio is linked to a cyclical bias; the spending/GDP ratio increased during recessions and stayed approximately constant during expansions. Also analyzed are the cyclical changes in the composition of government spending (goods and services, transfers and subsidies, and capital expenditure), in tax revenues, and a possible link between the cyclical bias and an index of government weakness.
This paper investigates the drastic reduction in public spending in OECD countries during the 199... more This paper investigates the drastic reduction in public spending in OECD countries during the 1990s. Using a panel data set of 18 countries, we find this adjustment to be a general OECD development, beginning in 1994, and that participation in the Maastricht Treaty or in the Stability and Growth Pact does not introduce additional effects. In the long run, this adjustment is estimated to reduce the ratio of primary government spending to output by about 4 percentage points. There is no evidence of differential adjustment in expansions or recessions. We also find that declines in interest payments on public debt are followed by increases in primary expenditures by about the same amount. The econometric framework makes it possible to compute the long-run ratios of government expenditures to GDP in the 18 OECD countries in the sample.
Macroeconomic Implication of Investment-Specific Technological Change
Hourly wages in survey micro data is usually computed as the ratio of salary to the reported numb... more Hourly wages in survey micro data is usually computed as the ratio of salary to the reported number of hours worked. This is the procedure used, for example, in the PSID (Panel Study of Economic Dynamics). Because any error in the reported number of hours translates into an opposite error in the hourly wage, it has been noted that the available micro data is likely to contain an artificial negative correlation between hours worked and hourly wages. In the labor supply literature, the usual procedure to circumvent this problem is to instrument the wage by the lagged wageassuming that the error is serially uncorrelated. Here, a direct procedure for estimating the measurement error is proposed and implemented with PSID data. The procedure is based on a signal extraction calculation using the available data on hours and wages in two subsequent years.
The macroeconomics Effects of mass Immigration to Israel
The "Embodiment" Controversy
A Migration Model with 'Zionism
American Economic Review
The role that investment-specific technological change played in generating postwar U.S. growth i... more The role that investment-specific technological change played in generating postwar U.S. growth is investigated here. The premise is that the introduction of new, more efficient capital goods is an important source of productivity change, and an attempt is made to disentangle its effects from the more traditional Hicks-neutral form of technological progress. The balanced-growth path for the model is characterized and calibrated to U.S. National Income and Product Account data. The quantitative analysis suggests that investment-specific technological change accounts for the major part of growth.
One measure of the health of the Social Security system is the difference between the market valu... more One measure of the health of the Social Security system is the difference between the market value of the trust fund and the present value of benefits accrued to date. How should present values be computed for this calculation in light of future uncertainties? We think it is important to use market value. Since claims on accrued benefits are not currently traded in financial markets, we cannot directly observe a market value. In this paper, we use a model to estimate what the market price for these claims would be if they were traded. In valuing such claims, the key issue is properly adjusting for risk. The traditional actuarial approach – the approach currently used by the Social Security Administration in generating its most widely cited numbers - ignores risk and instead simply discounts “expected†future flows back to the present using a risk-free rate. If benefits are risky and this risk is priced by the market, then actuarial estimates will differ from market value. Effec...
Capacity utilization and the real business cycle
The Role of Collaterized Household Debt in Macroeconomic Stabilization
This Paper studies the effects of mass immigration from the former USSR to Israel in the 1990s on... more This Paper studies the effects of mass immigration from the former USSR to Israel in the 1990s on the employment of the native-born. The exogeneity and the size of this inflow make it a ‘natural experiment’ of macroeconomic proportions. An open-economy macroeconomic model is used to analyse this experience, focusing on the differential entry of immigrants into the labour and
This paper analyzes the implications of adding to a tax-smoothing framework,the cost of deviating... more This paper analyzes the implications of adding to a tax-smoothing framework,the cost of deviating,upwards,from,a public-debt/output guideline. The implications for the dynamic paths of the tax rate, the debt/output,ratio and the government,spending/output,ratio are derived. A simulation,of the model,with Israeli data suggests that Israeli fiscal behavior is consistent with the (implicit) existence of such