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Essays on growth and fiscal policy

Brandao Roll, Julio (2025) Essays on growth and fiscal policy. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.00004892

Abstract

This thesis consists of one essay on economic growth and human capital, and two essays on local fiscal policy. In Chapter 1, I raise and test the hypothesis that the effect of human capital on economic growth depends crucially on the concentration of high-skilled labor across firms. First, I causally estimate that new colleges had a positive impact on local economic growth in municipalities with lower concentration of high-skilled labor, but a negative effect in municipalities with higher skill concentration. Second, I isolate the causal effect of changes in local high-skilled labor concentration on local growth. Third, I develop and estimate an endogenous growth model, which quantitatively matches the preceding results and which I use to assess policy counterfactuals. In Chapter 2, I show evidence of novel heterogeneity in local fiscal multipliers. First, I present evidence from the UK of an average local multiplier of 1.69 and 1.71 for services and capital spending, respectively. There are, however, significant inter-council differences in multiplier estimates which are unrelated to variation in local MPCs. I rationalize my results with a model of heterogeneous labor and productivity shocks that impose a psychological toll on workers’ cognitive load capacity. Results show potential gains from removing fiscal misallocation between councils. In Chapter 3, we examine the short-run effects of education expenditures on local income and employment. We estimate fiscal multipliers using city-level exposure to the US Federal Pell Grant Program. An increase in grants by 1 percent of a city’s income raises local income by 2.8% and local employment by 1.9% over the next two years. The higher multiplier is partly driven by Pell grants enabling students to take up student loans. Multipliers are also higher during recessions than in expansions, suggesting that Pell grants can be an effective tool for countercyclical policy.

Item Type: Thesis (PhD)
Additional Information: © 2025 Julio Brandao Roll
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HJ Public Finance
Sets: Departments > Economics
Supervisor: Jaravel, Xavier and De Ridder, Maarten
URI: http://etheses.lse.ac.uk/id/eprint/4892

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