The wide cross-country disparity in rates of economic growth is the most puzzling feature of the development process. This paper describes a class of models in which this heterogeneity in growth experiences can be the result of cross-country differences in government policy. These differences can also create incentives for labor migration from slow-growing to fast-growing countries. In the models considered, growth is endogenous, despite the absence of increasing returns, because there is a "core" of capital goods that can be produced without the direct or indirect contribution of factors that cannot be accumulated, such as land.

We propose a model consistent with two observations. First, the tax rates adopted by different countries are generally uncorrelated with their growth performance. Second, countries that drastically reduce private incentives to invest severely hurt their growth performance. In our model, the effects of taxation on growth are highly nonlinear. Low tax rates have a very small impact on long-run growth rates. But as tax rates rise, their negative impact on growth rises dramatically. The median voter chooses tax rates that have a small impact on growth prospects, making the relation between tax rates and economic growth difficult to measure empirically.

Why do the countries of the world display considerable disparity in long-term growth rates? This paper examines the hypothesis that the answer lies in differences in national public policies that affect the incentives that individuals have to accumulate capital in both its physical and human forms. Our analysis shows that these incentive effects can induce large differences in long-run growth rates. Since many of the key tax rates are difficult to measure, our procedure is an indirect one. We work within a calibrated, two-sector endogenous growth model, which has its origins in the microeconomic literature on human capital formation. We show that national taxation can substantially affect long-run growth rates. In particular, for small open economies with substantial capital mobility, national taxation can readily lead to "development traps" (in which countries stagnate or regress) or to "growth miracles" (in which countries shift from little growth to rapid expansion). This influence of taxation on the rate of economic growth has important welfare implications: in basic endogenous growth models, the welfare cost of a 10 percent increase in the rate of income tax can be 40 times larger than in the basic neoclassical model.

In this paper we argue that the primary force behind the large drop in real exchange rates that occurs after large devaluations is the slow adjustment in the prices of nontradable goods and services. Our empirical analysis uses data from five large devaluation episodes: Argentina (2002), Brazil (1999), Korea (1997), Mexico (1994), and Thailand (1997). We conduct a detailed analysis of the Argentinian case using disaggregated consumer price index data, data from our own survey of prices in Buenos Aires, and scanner data from supermarkets. We assess the robustness of our findings by studying large real exchange rate appreciations, medium devaluations, and small exchange rate movements.

Some booms in housing prices are followed by busts. Others are not. It is generally difficult to find observable fundamentals that are useful for predicting whether a boom will turn into a bust or not. We develop a model consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of “social dynamics.” Agents with tighter priors are more likely to convert others to their beliefs. Boom-bust episodes typically occur when skeptical agents happen to be correct. The booms that are not followed by busts typically occur when optimistic agents happen to be correct.

This paper develops a quantitative theory of how people weigh the risks of infections against the benefits of engaging in social interactions that contribute to the spread of infectious diseases. Our framework takes into account the effects of public policies and private behavior on the spread of the disease. We evaluate the model using a novel micro panel dataset on consumption expenditures of young and older people across the first three waves of COVID-19 in Portugal. Our model highlights the critical role of expectations in shaping how human behavior influences the dynamics of epidemics.