Empirical studies have been unable to provide a consistent answer regarding the long-run relationship between government education expenditures and percapita output growth. In this paper, we develop a simple endogenous growth model whereby growth is a function of both government education expenditures and taxation. Using pooled data from 1960 to 2000 for 83 countries, we test our growth equation and find that imposing the government budget constraint is imperative when estimating the relationship between expenditures and growth. Furthermore, we find a robust positive relationship between education expenditures and growth for rich countries when the method of finance is considered but no significant relationship for poor and middle-income countries.

Are di¨erent regions of the United States experiencing convergence in levels of GDP? Carlino and Mills (1993) examined this question through time-series techniques, and found some evidence in favor of regional convergence. This paper checks the robustness of their results by using new econometric methods proposed by Vogelsang (1998). Our results, together with results from Loewy and Papell (1996), suggest there is stronger evidence in favor of convergence than previously thought based on the results of Carlino and Mills (1993).

Do state policy makers have the ability to affect a state's rate of economic growth? This article examines one possible source of growth and per capita output level disparities by studying the role that state taxation and public expenditure decisions play in fostering economic development. Using pooled annual U.S. state-level data from 1972 to 1998, a fixed-effects model is employed to examine the effects of changing tax rates on both state per capita output levels and growth rates. The results indicate that higher tax rates negatively influence short-run state economic growth, which lowers state output levels. However, long-run growth is unaffected by changes in state tax rates, even after adjusting for the effects of initial per capita output levels, state expenditures, and aid from the federal government. Nor do changes in state public spending rates and federal aid permanently alter state growth rates, implying that state fiscal policies have only transitory effects on state growth. (JEL H71, O40, R11)

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C32, O40, R10,

This paper examines the 2006 to 2007 time period to determine the extent to which the release of the Federal Reserve minutes affects equity volatility and returns for 2832 individual firms. Using intraday data, we find that equity returns are essentially unaffected by FOMC minutes releases. We do find evidence of volatility effects, in that conditional volatility is lower prior to the minutes release and higher after the minutes release on release days, relative to a “control” day one week prior to the release date. These differences manifest at the 2:00–2:05 pm interval, and generally dissipate within 15 min. Consistent with previous literature, we also find evidence of both industry‐specific and firm size effects in our data. Finally, we see that volatility is higher (lower) when the minutes are released after the Federal Reserve engages in restrictive (expansionary) monetary policy. Our results are robust to a variety of different definitions of the “control” dates, as well as differing industry definitions.

Our paper investigates how macroeconomic fundamentals correlate with net capital inflows in the US. Understanding the factors associated with capital flows helps policy makers to predict future capital flows and analyse the international implications of domestic macroeconomic policy. Yet the theoretical relationship between net capital inflows and relative economic conditions is ambiguous. Using quarterly data from 1988 to 2003, we analyse the relation between a set of relative macroeconomic variables and net purchases of US stocks and bonds from Western Europe, Canada, Japan and Australia. We find that relative output growth is uncorrelated with net US investment for all regions. However, other macroeconomic factors matter; for example, an increase in US interest rates relative to European interest rates is associated with an increase in net portfolio investment from Europe. The linkages between à We wish to thank Tomas Dvorak, International Finance 8:2, 2005: pp. 303-327 macroeconomic factors and net foreign investment in the US are strongest for Western Europe, implying that information costs, home bias and other capital frictions are less relevant for US-Europe flows compared with capital flows between the US and the other three source regions. Lastly, stock purchases are more correlated with macroeconomic fundamentals than bonds, a striking finding suggesting that equity traders are more likely than bond traders to change their net asset holdings as a result of a macroeconomic event.