Three essays in open macroeconomics

The German Unification and its economic effects on the rest of European nations and the recent Mexican peso crisis illustrate that the fiscal and monetary policies in one country have significant implications to the other countries in this increasingly integrating modern industrial world. In the first paper, we analyze the international transmission and domestic effects of government spending and budget deficits in a two-country overlapping generations economy. Studies on fiscal policy in the open economy so far have been restrictive in the sense that most of them assume exogenously given output and fixed capital, and(or) do not incorporate labor-leisure choice. The key feature of our model is that labor, capital, and output are endogenously determined through the optimizing behavior of the 55 finite-lived representative agents in each country. We find that there is a positive transmission of domestic government spending and a negative transmission of budget deficits to foreign economy. The appropriate choice of tax base has significant implications on the economy in terms of saving, economic growth, and the distribution of welfare across generations. In the second paper, we compare the effects of alternative tax financing schemes for the given amount of domestic government spending. For the given amount of increase in government spending, government can raise the revenue to balance the budget by raising the consumption tax rate or wage income tax rate. The results show that consumption tax financing is more efficient. In the third paper, we model economic and technological leapfrogging and the phenomenon of uneven growth. In our model, leapfrogging occurs because of the nature of technological changes and uneven growth concerns the amount of national knowledge stock that exists when a new technology arrives. Our model is one of 2-good 3-country Ricardian model. Three countries compete to have comparative advantage in manufacturing sector which is growth generating