Santanu Chatterjee

Associate Professor of Economics

Director, Full-Time MBA Program

Terry College of Business

The University of Georgia

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Public Investment, Debt, and Welfare: A Quantitative Analysis (with John Gibson and Felix Rioja).


In this paper, we examine the relationship between infrastructure investment and economic welfare in the context of a heterogeneous agent, incomplete-markets economy. Using a quantitative model to match the key aggregate and distributional features of the U.S. economy over the period 1990-2015, we show that the welfare-maximizing share of public investment in GDP depends critically on whether one internalizes the transition path between stationary equilibria or not. When welfare changes are evaluated by only comparing long-run stationary equilibria, the model implies that the government should increase infrastructure investment above its average share of 4 percent of GDP in the data. However, once the transition path and short-run dynamics are internalized, welfare-maximization generates an intertemporal trade-off in the path of infrastructure spending: a short-run increase significantly above its observed share in the data, but a long-run decline below this share to satisfy the government's budget constraint.



The Macroeconomic Consequences of Remittances (with Berrak Bahadir and Thomas Lebesmuehlbacher). Revised and resubmitted, Journal of International Economics.


This paper examines two important channels which influence the dynamic absorption of remittances at the macroeconomic level: (i) the presence of borrowing constraints, and (ii) the distribution of remittances across recipient households. Using an open economy DSGE model with heterogeneous households, we show that remittances accruing to hand-to-mouth households generate a dynamic response that is inherently contractionary for the recipient economy. On the other hand, credit-constrained households with ownership of capital respond in a way that is inherently expansionary. The ability of countercyclical remittances to smooth business cycle shocks also depends critically on their distribution across households. Calibrating the model to Philippines using both aggregate data as well as micro-evidence from the Family Income and Expenditure Survey (FIES), we show that the presence of binding credit constraints and the internal distribution of remittances play an important role in improving the model's fit to the data. The welfare consequences of the distribution of remittances are also analyzed.


Remittances and the Informal Economy (with Stephen Turnovsky). Revised and resubmitted, Journal of Development Economics.


Many developing countries are characterized by a large informal sector, and are also often heavily dependent on remittance inflows from abroad. We develop a general equilibrium framework to understand better the dynamic absorption of remittances in a two-sector small open economy, by incorporating many of the stylized features of the informal sector. Calibrating the model to yield a long-run equilibrium consistent with sample averages for 56 developing countries for the period 1990-2014, we show that the effect of remittances depends critically on how they impinge on the recipient economy, i.e., whether these inflows are (i) permanent or temporary, (ii) associated with a collateral effect to securitize borrowing, and (iii) exogenous or countercyclical. We also identify the conditions under which remittances are associated with an expansion of the informal sector, as well as the Dutch Disease effect.


Delays in Public Goods (with Olaf Posch and Dennis Wesselbaum). CESifo Working Paper No. 6341


In this paper, we analyze the consequences of delays and cost overruns typically associated with the provision of public infrastructure in the context of a growing economy. Our results indicate that uncertainty about the arrival of public capital can more than offset its positive spillovers for private-sector productivity. In a decentralized economy, unanticipated delays in the provision of public capital generate too much consumption and too little private investment relative to the first-best optimum. The characterization of the first-best optimum is also affected: facing delays in the arrival of public goods, a social planner allocates more resources to private investment and less to consumption relative to the first-best outcome in the canonical model (without delays). The presence of delays also lowers equilibrium growth, and leads to a diverging growth path relative to that implied by the canonical model. This suggests that delays in public capital provision may be a potential determinant of cross-country differences in income and economic growth.


The Spillover Effects of Public Investment: Implications for Formal and Informal Sector Firms in India (with Abhinav Narayanan)


This paper uses firm-level data on formal and informal production in the manufacturing sector in India to examine the sectoral consequences of government investment in public infrastructure. The average output elasticity of the flow of public investment for an informal sector firm is three times smaller than its formal counterpart. For the accumulated stock of public capital, this difference increases to a factor of seven. However, the sectoral size distribution of firms matters for the effects associated with public investment: for the formal sector, there is very little variation in the output elasticity of public investment across the size distribution of firms. On the other hand, the output elasticity for informal sector firms is strictly increasing in firm size. Further, the relationship between public investment and capital intensity in production for formal sector firms is negative, especially for firms in the middle of the size distribution. By contrast, the corresponding relationship is strictly positive and increasing with firm size for the informal sector, indicating strong complementarities.


Public versus Private Investment in Determining Child Health Outcomes: Evidence from India (with Divya Balasubramaniam and David Mustard)


This paper examines the relationship between access to drinking water, sanitation facilities, and health outcomes for children in India. We use the NFHS 2005-2006 household-level survey data to construct the conditional nutritional distribution for two anthropometric health measures for children between ages six months to two years that capture both short term and longer-term health outcomes: the weight-for-height ("wasting" - short term) and height-forage ("stunting" - long term) z-scores. Using a quantile regressions approach, we find that public goods such as piped water and access to healthcare facilities are not associated with improving child health outcomes. On the other hand, private investments within the home such as pit latrines and flush toilets do have a strong influence on health outcomes, with the magnitude of the effects being the largest in the middle of the respective conditional nutritional distributions. Further, rural children at the lower end of the nutritional distribution benefit much more than their urban counterparts. We also find that the educational attainment of the mother has a strong association with better health outcomes, both in the short run as well as the long run. Finally, access to well water and boiling drinking water also matter, though their effects depend on whether the underlying health measure is a short term or long term one, and the child's relative position in the conditional nutritional distribution. Over all, our results provide evidence against "one size fits all" policies, and point towards incentives for private investments in sanitation and mother's education, especially in rural areas and for children in the middle of the conditional nutritional distribution.




NOTE: All papers in this section are copyrighted by their publishers and are not to be reproduced without appropriate permission.


Optimal Public Debt Redux (with John Gibson and Felix Rioja)

Journal of Economic Dynamics and Control 83, 162-174 (2017).


Fiscal Policy and the Real Exchange Rate (with Azer Mursagulov)

Macroeconomic Dynamics 20, 1742-1770 (2016).


Got Water? Social Divisions and Access to Public Goods in Rural India (with Divya Balasubramaniam and David Mustard)

Economica 81, 140-160 (2014).


Infrastructure and Inequality (with Stephen Turnovsky)

European Economic Review 56, 1730-1745 (2012).


Where Has all the Money Gone? Foreign Aid and the Composition of Government Spending (with Paola Giuliano and Ilker Kaya)

B.E. Journal of Macroeconomics: Contributions 12 (1), 1-34 (2012).


Growth and Inequality: Dependence on the Time Path of Productivity Increases (and Other Structural Changes) (with Manoj Atolia and Stephen Turnovsky)

Journal of Economic Dynamics and Control 36, 331-348 (2012)


The Dual Nature of Public Goods and Congestion: The Role of Fiscal Policy Revisited (with S. Ghosh)

Canadian Journal of Economics 44, 1471-1496 (2011).


Infrastructure Provision and Macroeconomic Performance (with M. Morshed)

Journal of Economic Dynamics and Control 35, 1151-1386 (2011).


How Misleading is Linearization? Evaluating the Dynamics of the Neoclassical Growth Model (with M. Atolia and S.J. Turnovsky)

Journal of Economic Dynamics and Control 34, 1550-1571 (2010).


Should the Private Sector Provide Public Capital? with Appendix.

Macroeconomic Dynamics, vol. 11, no. 3, 318-346 (2007).


Foreign Aid and Economic Growth: The Role of Flexible Labor Supply (with S.J. Turnovsky)

Journal of Development Economics, vol. 84, issue 1, 507-533 (2007).


Capital Utilization, Economic Growth and Convergence

Journal of Economic Dynamics and Control, vol. 29, issue 12, 2093-2124 (2005) (lead article).

Financing Public Investment Through Foreign Aid: Consequences for Economic Growth and Welfare (with S.J. Turnovsky).

Review of International Economics, vol. 13, No. 1, 20-44, (2005).


Capital Income Taxes and Growth in a Stochastic Economy: A Numerical Analysis of the Role of Risk Aversion and Intertemporal Substitution (with P. Guiliano and S.J. Turnovsky).

Journal of Public Economic Theory, vol. 6, issue 2, 277-310 (2004).


Substitutability of Capital, Investment Costs and Foreign Aid (with S.J. Turnovsky).

Economic Growth and Macroeconomic Dynamics: Recent Developments in Economic Theory, Cambridge University Press (2004).

S. Dowrick, R. Pitchford, and S.J. Turnovsky (eds.)


Unilateral Capital Transfers, Public Investment and Economic Growth (with G. Sakoulis and S.J. Turnovsky)

European Economic Review, vol. 47 (6), 1077-1103, (2003).


To Spend the U.S. Government Surplus or Increase the Deficit? A Numerical Analysis of the Policy Options (with S.J. Turnovsky)

Journal of the Japanese and International Economies vol. 16, 405-435, (2002) (lead article)

NBER-CEPR Special Issue on Fiscal Adjustment.


Non-refereed Publications


Workbook for Methods of Macroeconomic Dynamics (with S.J. Turnovsky and M.K. Hendrickson), The MIT Press. Second Edition, 2000.


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