2013 Cambridge Business & Economics Conference
ISBN : 9780974211428
A Quantitative Analysis of Critical Factors Encompassing Economic Growth
John Wang, Montclair State University, USA
Gang Wang, Kean University, USA
Qiannong Gu, Sam Houston State University, USA
ABSTRACT
This paper explores and examines effects of components like Expenditure and GDP,
External Sectors, Disposable Income, Debt, Price and Deflators, Government Accounts, Labor
Markets, Taxes and Income on economic growth in industrialized countries. A mathematical
evaluation method is proposed for this study. This method is easy to apply and uses a linear
programming model. The weights for various measurements are determined by objective method
and are standard. The method is illustrated with real data from twenty-one countries worldwide.
A brief mention of impact on quality of life due to economic growth is also included in the paper.
Keywords: Economic growth; linear programming; Expenditure and GDP; External Sectors;
Disposable Income; Debt; Price and Deflators; Government Accounts; Labor Markets; Taxes
and Income; Pareto optimization
INTRODUCTION
The study and evaluation of economic growth is a topic widely discussed and debated. In
order to examine the components of the economic growth we will be using and examining the
various factors such as Expenditure and GDP, External Sectors, Disposable Income, Debt, Price
and Deflators, Government Accounts, Labor Markets, Taxes and Income. An international
comparative model will also be used to evaluate and rank twenty-one countries in each of the
above-mentioned categories. This will allow for each study and conclusion to be measured and
compared against real world values and scenarios, solidifying our conclusions based on literature
reviews and research.
Taxes can affect the economy in a number of ways ranging from national and local
economic growth to how individuals manage their personal finances. Although taxation itself is
ubiquitous, whether taxes have a positive or negative effect on the general economic condition of
the country is the subject of much debate. Over the past decade and a half, Americans have been
presented with two radically different visions of the role of government. The first vision declares
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that government taxation and burdensome regulations are harmful to the natural market forces
that generate economic growth. Since economic growth is the only way to truly create jobs and
raise incomes, policies that reduce taxes and government intervention are the keys to higher
living standards for all Americans. The second vision states that the expansion of government
does not have harmful effects on the economy and, in fact, may actually be a source of economic
growth. Proponents of this vision believe that it is largely through government policies that
people can be made better off. According to this vision, tax increases, such as those enacted in
1990 by President Bush and in 1993 by President Clinton, are valid and effective means by
which to achieve such policies. When tax increases are not politically feasible, continued deficit
spending is the next-best alternative (Miao and Wang, 2012).
Components like government net lending (as a percentage of GDP), final consumption
expenditure (% of GDP), private final consumption expenditure, per capita, gross domestic
product, per capita, gross fixed capital formation (annual % growth), exports of goods and
services(% of GDP) contribute immensely to economic forecast. The role of government
expenditure in GDP is perhaps the most studied and researched topic when it comes to
understanding the landscape of economic growth in countries. Policymakers are divided as to
whether government expansion helps or hinders economic growth. Advocates of bigger
government argue that government programs provide valuable "public goods" such as education
and infrastructure. They also claim that increases in government spending can bolster economic
growth by putting money into people's pockets.
Proponents of smaller government have the opposite view. They explain that government
is too big and that higher spending undermines economic growth by transferring additional
resources from the productive sector of the economy to government, which uses them less
efficiently. They also warn that an expanding public sector complicates efforts to implement progrowth policies-such as fundamental tax reform and personal retirement accounts- because
critics can use the existence of budget deficits as a reason to oppose policies that would
strengthen the economy.
Inflation, interest rates and government revenue and spending are essential indicators and
elements in supporting and sustaining economic growth. The rate of inflation will be determined
by factors including but not limited to consumer price index and gross domestic product. These
elements help determine the overall cost of living as well as the purchasing power of the
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consumer which provide stimulation on the status of the economy, a good measure to understand
if the processes and polices being put in place to stimulate economic growth are working. We
will also review interest rates and their impact on economic growth. Interest rates are essentially
the cost of investing or borrowing money. When these rates are low, businesses and consumers
benefit by being able to make investments or borrow money at a lower overall costs.
Government spending and revenue can also generate economic growth based on the country’s
monetary policy.
Debt and external sectors are also a critical part of determining economic growth. The
external sectors of a country are a basket of economic data, and for our project we chose to focus
on the subcategories of current account deficit and exports of goods and services. Both
subcategories were converting to a percentage of GDP in order to compare the factors across
multiple OECD countries. We also looked at general government financial balances which is
general government current tax and non-tax receipts less general government total outlays.
This paper is structured as follows. In the next section, we begin with discussion of the
relevant literature. This is followed by our model development. Using a mathematical model, it
is shown that an objective evaluation can be performed in the collected dataset. Next, a
theoretical foundation has been provided. The paper concludes with a discussion of current
ranking and potential research directions. In this report we will examine how factors mentioned
above impact economic growth and how 21 countries around the world are performing based on
these factors.
LITERATURE REVIEW
The importance of a few selected components of economy that contribute to its growth is
reviewed in this section. Additionally, various scholars’ views on the subject are carefully
examined. But first, we look at what is economic growth and why is it important for both,
developed and emerging countries, to sustain it for long term benefits.
Economic growth has long been considered an important goal of economic policy, yet in
recent years there have been argument against further trying to raise the material standard of
living, claiming that such increases will do little for the prosperity of its population.
What is Economic Growth?
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In a rather simple form, economic growth is an increase in the capacity of an economy to
produce goods and services, compared from one period of time to another. Economic growth can
be measured in nominal terms, which include inflation, or in real terms, which are adjusted for
inflation. For comparing one country's economic growth to another, GDP or GNP per capita
should be used as these take into account population differences between countries. Furthermore,
economic growth depends on productivity and investment: using existing resources more
efficiently and investing in new resources. Success in this process generates increased incomes
which then fuel demand and encourage further economic growth. This cycle can, however, work
in the reverse direction, as falling demand may lead to under-used resources and investment
cutbacks.
Why is Economic Growth Important?
A few obvious reasons are, improves quality of life, sustainable growth in businesses,
continuous growth of a society. Steady economic growth generated through innovation plays a
major role in producing increases in per capita income. Small changes in economic growth can
yield very large differences in income over time, making firm growth particularly salient to
societies (Ahlstrom, 2010). With world population now having touched 7 billion, it is imperative
that countries realize that without economic growth, they risk catastrophic setbacks that might
even lead to civil wars. We are starting to see adverse effect of global economic crisis and how
some countries are almost on the verge of bankruptcy. These countries suffer from lack of
strategic economic growth plans and relied heavily on old theories that might no longer work as
effectively as they used to. On the other hand, BRIC countries are taking extreme steps and have
been very innovative to ensure its economic growth is sustainable in the long run.
On the flip side, there have been strong arguments on what negative impact can economic
growth bring to the country and globally. Case and Fair (2006) believe that wants are created,
and consumers have become the servants, instead of the masters, of the economy. Also, factors
like equitable growth, environmental degradation and resource depletion constitute to causing
negative effects in the society.
We now look at how economic growth contributes to high quality of life. A high quality
of life can be defined as one providing the most favorable living conditions for man of diverse
interest; an environment beneficial to good mental and physical health and well being of all its
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inhabitants; an environment in which man’s needs are being most adequately satisfied, for
instance his need for peace and justice, his needs for housing, food, recreation, educational and
aesthetic simulation (Arthur and Frank, 1974; Carlaw and Lipsey, 2011). The contribution of
economic growth to quality of life can be summarized as follows: Larger output of consumption
goods and services supplied to the private market; Larger output of public consumption goods;
Larger private investments will produce more output of goods and services in the next period;
Larger public investments will provide more public goods; Technological progress; Growing
economy can generate funds to improve the physical, social, human and global environment.
Scholars have had conflicting views on role of government spending on economic
growth. The share of government capital expenditure in GDP is positively and significantly
correlated with economic growth, while the growth effect of current expenditure is insignificant
for our group of countries. At the disaggregated level, government investment in education and
total expenditures in education are the only outlays that remain significantly associated with
growth (Bose, Haque, & Osborn, 2007).
It is logical to assume that higher taxes decreases disposable income which, in turn, has a
negative effect on economic growth. A number of studies have explored the impact of taxes on
state economic growth. However, most, but not all, of these studies found evidence of a negative
effect of taxes on various measures of state economic performance. A few studies have
attempted to isolate the effect of state income taxes on economic growth. Most of those studies
found no effects of average tax levels on income, but high marginal income tax rates appear to
have a significant negative impact on income.
The tax price concept suggests that there should be a negative relationship between
higher tax rates and state economic growth. However, there is a substantial debate regarding this
theoretical proposition. Holcombe and Lacombe (2004) explore this debate with regard to the
potential negative impact of state income taxes on state economic growth. Several theoretical
arguments were used to support the inference of a negative relationship. When a state income tax
is added to federal taxes, the marginal impact of the state income tax may be greater (Browning,
1976). Furthermore, when two governments tax the same tax base the combined tax rate may be
inefficiently high (Sobel, 1997). For a given level of state spending, however, a broader tax base
that includes income taxation may have a lower excess burden than a narrow tax base that
excludes income taxation (Lee, 2011).
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Holcombe and Lacombe (2004) point out that even if there is a negative relationship, it
may not be significant. If state taxes are small relative to federal taxes, and if federal policy
creates uniformity among the states, tax policy may not significantly impact state economic
growth. They argue that it is important to measure the magnitude of this relationship.
Economic theory provides an explanation for a negative relationship between taxes and
economic growth. Taxes raise the cost or lower the return to the taxed activity. Income taxes
create a disincentive to earning taxable income. Individuals and firms have an incentive to
engage in activities that minimize their tax burden. As they substitute activities that are taxed at a
lower rate for activities taxed at a higher rate, individuals and firms will engage in less
productive activity, leading to lower rates of economic growth. In addition, government
expenditures—how the taxes are spent—will also have an impact on economic growth.
Increased disposable income, so obtained through capital formation, pushes up the
consumption leading to economic development. The consumption function shows the relation
between aggregate income and aggregate consumption. Consumer money drives the economy,
and retail is where consumers spend that money. Retail business is governed by human
consumption (Bajaj, Tuli and Srivastava, 2008).
Consumption is the value of goods and services bought by people. Individual buying acts
are aggregated over time and space. Consumption is normally the largest GDP component.
Before Economic Reforms, consumption comprised of approximate 52% of the GDP, however
after reforms, it has grown its share to more than 62% (Sachdeva, 2008). Many persons judge
the economic performance of their country mainly in terms of consumption level, which is
distributed in the consumption of three categories of products, namely durable, nondurables and
services. Consumption occurs through both Institutions and Industry as well as by individuals.
The individual consumption rise, also leads to increased aggregate demand. The accelerated
demand leads to increase in production and thus brings back its return to the consumer in the
form of wages & profit. Thus in a simple closed economy, the household spends their income.
This spending on consumer goods is the only component of aggregate demand. But in present
day open economy, international trade and government spending also constitute to the aggregate
demand.
It is a common view that growth and employment go hand in hand. But there is also the
notion that higher productivity could mean fewer jobs. In the public debate, there is often a
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failure to distinguish between increases in output that are due to higher capacity utilization and
those that are due to long-term growth. Labor-market reforms that lower wage costs and
increased employment will, of course, also cause output to grow during the adjustment process.
The output increase will be reinforced with a lag by increases in the capital stock, because
investment will be more profitable when the return to capital increases. This leads to increases
in labor productivity and to further increases in labor demand. The adjustment process continues
until the return to capital has been restored to its original level. The increase in the capital stock
means that labor-market reform will reduce real wages much less (or not at all) in the long run
than in the short run (Alogoskoufis et al., 1995).
Prices and deflators are key economic indicators that measure the level of inflation and
the effectiveness of the many policies and elements that influence economic growth. Consumer
price index and gross domestic product as a deflator are used to calculate the level of inflation.
Litra (2009) reviewed both methods and found that the use of the consumer price index and gross
domestic product as a deflator to calculate inflation result in different calculation as they measure
inflation based on a set of good and services versus the entire economic output. These
fundamental differences in calculations result in our needing to take the calculations of the
consumer price index and the gross domestic product as a deflator as individual elements
calculating inflation while discussing the use of inflation an economic indicator.
Interest rates are used as a tool in monetary policy to try and create and spur economic
growth. They are defined as the cost for borrowing or investing cash, a rental charge. In order to
determine the impact of short term and long term interest rate on economic growth we reviewed
several scholarly publications. Jamal, Hsing, and Lee (2011) investigate the approach that there
is a formula that can be used to determine the perfect level on interest rates to create economic
growth. Upon evaluation of their assessment we agree with their proposed formulas which take
key economic indicators to set interest rates at the optimal level for economic growth. We take
low interest rate values as having the best potential to create economic growth.
As we begin to analyze the subcategories of government spending, revenue and net
lending we are forced to address a fundamental economics question, does government spending
affect economic growth? To simply deny that government spending has the ability to create or
promote economic growth is changes not only how see government spending but also how we
measure the success of the results. Stratmann and Okolski (2010) focus on what drives
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government spending as a generalized topic and how unproductive spending can impact and
eliminate the benefits of productive spending. The policies and justifications for government
spending often can minimize if not eliminate their benefit and not generate the amount of
economic growth needed to sustain future spending as well as economic wellbeing.
External sectors such as the current account balance and the export of goods and services
also play a vital role in economic growth, although scholars disagree on how that role is defined.
It is a widely held concept that if you have more exports that is better for your economic growth.
This means that goods are being produced in a country and sold overseas, meaning more jobs in
a country and more capital flowing into a country. One could also argue that the international
economic order would be in far worse shape today if the U.S. had not been willing to accept,
however grudgingly, a sharp deterioration in its merchandise trade account during the current
decade. Take trade with Canada, America's largest trading partner (Carlaw and Lipsey, 2011).
Debt also plays a vital role in economic growth. Debt allows a country to finance its
growth, but having too much debt could be dangerous and lead to possible default, as we have
seen with the recent developments in Europe. Mounting deficits are never good news. Making it
worse, the US is shipping a rising portion of interest payments on that debt abroad. That means
less of that money stays at home to be spent or invested. And it also can weaken confidence in
the dollar (Francis, 2003).
MODEL DEVELOPMENT
An international comparison of economic growth from twenty-one countries is being
conducted under nine categories: Expenditure and GDP, External Sectors, Disposable Income,
Debt, Price and Deflators, Government Accounts, Labor Markets, Taxes and Income. Each
category consists of multiple subcategories and measurements to make up the categories. The
data for the comparison were taken from various databases and compiled accordingly. Main
resources for the data were OECD’s Directorate for Science, Technology and Industry, the
World Bank Group and United Nations Development Program. Table 1 will provide the raw
data for each category and subcategory.
The countries we chose for this study are industrialized nations that are the members of
Organization for Economic Co-operation and Development. OECD consists of developed
nations who are, “committed to democracy and the market economy from around the world”.
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The data availability and additional information on country were the most important reasons why
we selected the 21 countries out of 30 OECD members (from 2007 through 2010).
The economic indicators fall into seven broad sections:
- Total Output, Income, and Spending
- Employment, Unemployment, and Wages
- Production and Business Activity
- Prices
- Money, Credit, and Security Markets
- Federal Finance
- International Statistics (International Trade)
Each of the statistics in these sections helps create a picture of the performance of the
economy and how the economy is likely to do in the future. The sub-categories chosen in this
report are a mix of above sections thus allowing our conclusion to be based on a broad study.
Additionally, each of the categories is further divided into sub-categories in order to study
various components that contribute to a category.
Expenditure and GDP
This category alone can provide with a good grasp of which direction is economy of a
country headed. The category is further divided into 6 sub-categories. These sub-categories
include: Government net lending (as a percentage of GDP), Final consumption expenditure (% of
GDP), Private final consumption expenditure, per capita, Gross domestic product, per capita,
Gross fixed capital formation (annual % growth), Exports of goods and services(% of GDP). We
take a look at definition of each of these sub-categories.
Government Net lending (+)/borrowing (-) is calculated as revenue minus total
expenditure. This is a core GFS balance that measures the extent to which general government is
either putting financial resources at the disposal of other sectors in the economy and nonresidents
(net lending); or utilizing the financial resources generated by other sectors and nonresidents (net
borrowing). This balance may be viewed as an indicator of the financial impact of general
government activity on the rest of the economy and nonresidents. Net lending/borrowing also
equal to net acquisition of financial assets minus net incurrence of liabilities
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Final consumption expenditure (formerly total consumption) is the sum of household
final consumption expenditure (private consumption) and general government final consumption
expenditure (general government consumption). This estimate includes any statistical
discrepancy in the use of resources relative to the supply of resources.
Household final consumption expenditure per capita (private consumption per capita) is
calculated using private consumption in constant 2000 prices and World Bank population
estimates. Household final consumption expenditure is the market value of all goods and
services, including durable products (such as cars, washing machines, and home computers),
purchased by households. It excludes purchases of dwellings but includes imputed rent for
owner-occupied dwellings. It also includes payments and fees to governments to obtain permits
and licenses.
Average annual growth of gross fixed capital formation based on constant local currency.
Aggregates are based on constant 2000 U.S. dollars. Gross fixed capital formation (formerly
gross domestic fixed investment) includes land improvements (fences, ditches, drains, and so
on); plant, machinery, and equipment purchases; and the construction of roads, railways, and the
like, including schools, offices, hospitals, private residential dwellings, and commercial and
industrial buildings. According to the 1993 SNA (The System of National Accounts), net
acquisitions of valuables are also considered capital formation.
Exports of goods and services represent the value of all goods and other market services
provided to the rest of the world. They include the value of merchandise, freight, insurance,
transport, travel, royalties, license fees, and other services, such as communication, construction,
financial, information, business, personal, and government services. They exclude compensation
of employees and investment income (formerly called factor services) and transfer payments.
GDP per capita is gross domestic product divided by midyear population. GDP is the sum
of gross value added by all resident producers in the economy plus any product taxes and minus
any subsidies not included in the value of the products. It is calculated without making
deductions for depreciation of fabricated assets or for depletion and degradation of natural
resources. Data are in current U.S. dollars.
Prices and Deflators
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The Prices and Deflators category consists of two subcategories: Consumer Price Index
(CPI) and Gross Domestic Product (GDP). Prices and deflators are used to measure the cost of
living change over time as well as the overall standard of living. The CPI helps this purpose by
measuring the overall cost of a given set of goods and services over time. The GDP subcategory
measures the market value of all the final goods and services produced in a country for a given
time period. Both the CPI and GDP are used to determine the economy’s price level and inflation
rate. This is in turn directly related to the economic growth of a country.
The CPI is a measure of the price of a basket of goods and services paid by consumers
over a period of time. This measure is used as a deflator as well as an economic indicator.
Changes in a country’s CPI are used to determine the impact over time on the cost of living
specifically related to inflation and deflation. The CPI can be calculated monthly, quarterly or
yearly. The yearly figures are used in this case to compare across the various countries in this
study. An increase in CPI is used to measure the rate of inflation since it measures the price
changes to the same goods and services over time. CPI is also used as a deflator in order to
measure the value of currency and find the purchasing power of the consumer.
The goods and services that the CPI measures can vary slightly by country but in general
includes items in the following categories: food and beverages, housing, apparel, transportation,
medical care, recreation, education, communication and others. Generally government fees are
included while investments are excluded. The index is measured relative to a base year in which
the value of the basket of goods and services are held at 100. Each year after the base the values
are held to the same index. The rate is compared to the same month in the previous year and is
the main measure of inflation. On a global scale, since the rate is indexed at a base of 100 and
calculated in the same form, we are able to compare the CPI values of different countries to one
another for an “apples to apples” comparison so to speak.
Given that the CPI measures the prices of goods and services and is the main calculator to
determine inflation we calculated in the table that low was the best value based on the same
baseline index of 2005 being equal to 100 (OECD, 2011). This gives the greatest value to the
country with the lowest value, even if that value is below the index value of 100 the highest
significance.
The next subcategory is GDP. GDP is the value of all the goods and services produced in
a given country over a given time period. It is generally perceived as the overall size of the
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economy. When we talk about GDP as a deflator, which uses GDP in order to counter inflation,
we measure the ratio of nominal GDP to the real GDP measure. Doing this deflates the nominal
GDP and normalizes the base year to 100. Unlike the CPI which measures a specific goods and
services and measures the change in their price over time, GDP changes yearly and is based on
all the final good and services sold within a country. This allows GDP to reflect the current
expenditure patterns since it is not limited to specific set items.
GDP per capita in and of itself is a value that should be high, which indicates a large
economy, however GDP as a deflator should be a low number since the deflator measure the
change in the price of the domestically produced goods and services as a whole. For the purposes
of the table based on the reasons outlined above the optimal value for the GDP deflator is low. A
low GDP deflator serves as indication of low inflation, which is a key for economic growth.
Monetary Data
Interest rates have long been known as the cost or price for borrowing money or the gain
from lending. In terms of economic growth these rates are essential in getting both the private
and public sector’s of a country to spend money and invest is both short term and long-term
assets. If investing or borrowing money to invest is too expensive both companies and
individuals will spend and invest less.
The first subcategory is long-term interest rates. A Long-term interest rate is the interest
rate earned on a note or bond with the maturity date ten or more years in the future. Typically
this rate is higher than short-term since lenders tend to want a higher return on money. Unlike
short-term interest rates, long-term interest rate is set by the market forces (supply and demand)
and not by central banks. This makes them a true measure of how the market perceives the
current state of the economy.
Low long-term interest rates attract investments by both consumers and companies. They
see that the cost of investing in assets or borrowing money for more than 10 years is cheaper and
therefore more affordable. This makes a low long-term interest rate a key element to creating
economic growth.
The instrument used to calculate the values provided for table are government bonds for
the respective countries. Based on the factors defined above the calculations were based on a low
long-term interest rate being the optimal value, which means that the cost of borrowing or
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investing is low. A low rate is a good element to have in order to spur current and future
economic growth in a country.
The next subcategory is short-term interest rates. A short-term interest rate is the rate at
which the lender is paid by the borrower for using the money they borrow from the lender. A
variety of lengths of time have been defined for short-tern interest rates, however for the sake of
this exercise we will state that the term is from zero to ten years. These rates are typically
administered by the country’s national banks.
High short-term interest rates mean that it is more expensive to borrow money for a short
time. This has the greatest impact on the consumer market since it impacts credit cards and shortterm loans. However, high short-term interest rates also provide high rates for savings and
money market accounts, which can also hinder economic growth. An example of this situation
can be described in buying a car, if the short-term interest rate is high, the consumer may choose
not to purchase a vehicle because the interest rate is high. The consumer will see the high interest
rate to save as more of a benefit then to invest in the car, which does not spur economic growth.
In order to support and prompt economic growth a low short-term interest rate is optimal.
The calculations for the mathematical evaluation take a low short-term interest rate as well as a
low long-term interest rate as the best option for both sub-categories in the monetary data
category.
Government Accounts
This subcategory looks at government accounts and their impact on economic growth.
All categories are calculated based on their values as a percent of GDP in order to normalize the
data and evaluate the values evenly.
The first sub-category in this section is government total expenditures as a percentage of
GDP. Government spending includes all government consumption and investments. In countries
across the global government spending is often used as a tool to spur economic growth. This is
based on existing economic policies that dictate that government spending will lead to economic
growth. When we look at the rate of spending as a percentage of GDP we are able to normalize
the data and compare the spending of each country based on its current output, gross domestic
product.
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However if this spending is high it can pose a risk to the ability of the country to support
continuous spending at a sustained rate as well as ensure the effectiveness of the spending.
Additionally, questions have been raised as the effectiveness of government spending as a
proponent of economic growth (Stratmann and Okolski, 2010). As such it is argued for this
calculation that the low government expenditure is the best value for this model.
The second sub-category in this section is government revenue as a percentage of GDP.
Government revenue consists of taxes, social contributions, grants receivable, and other revenue.
This sub-category requires a high value for our model, this is obvious as higher revenue
generated by a government especially when expressed as a percent of GDP can express how
much cash input the government is able to generate based on the taxes, social contributions,
grants and other revenues within its borders.
The Government revenue related to the economic growth of a country because the
revenue generated is based on the health of the country’s overall economy. Therefore this dataset
can be used as a measure of economic health. Additionally, based on tax policies and regulations
placed on transactions and income generated within the country, the amount of revenue
generated between two countries with the same size economy can differ substantially. Given this,
we can also use the government revenue value to compare such policies is the additional
information is available and two economies are deemed similar enough to justify the comparison.
The last sub-category in this section is government net lending as a percentage of GDP.
Net lending is calculated as revenue minus total expenditure. Economics have long stated that in
order to order to make money you must spend money. To measure the amount of net lending that
a country is doing we look at the value as a percentage of GDP. Net lending measures the extent
to which general government is either putting financial resources at the disposal of other sectors
in the economy and nonresidents (net lending), or utilizing the financial resources generated by
other sectors and nonresidents (net borrowing) (Econstats, 2011). Balancing the net lending and
net borrowing indicates how the government activity is impacting the economy and nonresidents financially. Based on this indicator for the model development we provide that a high
net lending results in best outcome.
External Sectors
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The external sectors of a country are a basket of economic data. We chose to focus on the
subcategories of current account deficit and exports of goods and services. Both subcategories
were converting to a percentage of GDP in order to compare the factors across multiple OECD
countries.
The current account balance is part of a measure of an economy’s savings. Along with
net capital transfers and acquisition/disposal of non-produced, non-financial assets, the current
account balance represents the net foreign investment or net lending/borrowing position of a
country in comparison to other nations. A persistent current account deficits or surpluses indicate
a macroeconomic instability that is not conducive to sustained economic growth and, therefore,
to sustained means of implementation of sustainable development goals (United Nations, 2011).
The concept of current account sustainability has long been the focus of research and
policy debate in economics. The mean reversion property of the current account has at least two
important implications for international macroeconomics. First, a stationary current account is
consistent with the sustainability of the external debt. In this case, there is no incentive for the
government to make drastic policy changes and default on its international debts in the near
future. Second, the stationarity of the current account validates the modern inter-temporal model
(Chen, 2011).
Exports of goods and services represent the value of all goods and other market services
provided to the rest of the world. They include the value of merchandise, freight, insurance,
transport, travel, royalties, license fees, and other services, such as communication, construction,
financial, information, business, personal, and government services. They exclude compensation
of employees and investment income (formerly called factor services) and transfer payments
(World Bank, 2011).
At a time when many economies are debt laden and stagnating, China and Germany have
become the envy of the world. Popularly viewed as eschewing the material excesses that
unhinged the Western consumer-capitalist model, the world’s ‘surplus states’ have become
economic kingmakers and hailed as examples of good governance and prudence. We don’t hold
the same view. Understanding of global economic imbalances is often confused, with a default
view that high savings and burgeoning exports automatically give an economy the upper hand
(Choi and Coffey, 2011).
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Debt
The first debt category we chose is general government gross financial liabilities as a
percentage of GDP. Debt is consolidated within the general government. Financial liabilities
such as trade credits extended to the government are not included. Debt is valued at nominal
value (face value). Index-linked debt is valued at its face value adjusted by the index-related
capital uplift accrued to the end of the year. Gross debt according to the Maastricht criterion
differs from the SNA based general government gross financial liabilities concept of the OECD
in essentially two respects. First, gross debt according to the Maastricht criterion does not
include, in the terminology of the SNA, trade credits and advances. Second, there is a difference
in valuation methodology in that government bonds are to be valued at nominal values according
to the Maastricht definition, but at market value or at issue price plus accrued interest according
to SNA rules (OECD, 2011).
We also looked at general government financial balances which is general government
current tax and non-tax receipts less general government total outlays (OECD, 2011). In addition
we looked at total central government debt as a percentage of GDP. Total central government
“debt is the entire stock of direct government fixed-term contractual obligations to others
outstanding on a particular date. It includes domestic and foreign liabilities such as currency and
money deposits, securities other than shares, and loans. It is the gross amount of government
liabilities reduced by the amount of equity and financial derivatives held by the government.
Because debt is a stock rather than a flow, it is measured as of a given date, usually the last day
of the fiscal year (Nationmaster, 2011).
Disposable Income
The Disposable Income category consists of two subcategories; Gross National Income
per capita and Real Household Disposable Income. Disposable income is the amount of money
that households have available for spending and saving after income taxes have been accounted
for. Taxes affect the amount of disposable income available for consumption and saving. As
such, any change in taxes indirectly affects aggregate expenditures and the macro economy
through consumption expenditures and investment expenditures (via saving). It was estimated
that higher taxes lead to a significant reduction in economic growth, which can have the impact
of lowering incomes by about 38 cents for each dollar of tax collected (Greiner, 2012).
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Gross National Income is defined as Gross Domestic Product (GDP), which is total value
of goods and services produced within a country, plus net receipts from abroad of wages and
salaries and of property income. GNI per capita is gross national income divided by mid-year
population. Wages and salaries from abroad are those that are earned by people who essentially
live and consume inside the economic territory but work abroad or for people that live and work
abroad for only short periods (seasonal workers) and whose centre of economic interest thus
remains in their home country. Guest-workers and other migrant workers who live abroad for
twelve months or more are considered to be resident in the country where they are working. Such
persons may send part of their earnings to relatives at home, but these remittances are treated as
transfers between resident and non-resident households and do not enter into net receipts from
abroad of wages and salaries. Property income from abroad includes interest, dividends and all
or part of the retained earnings of foreign enterprises owned fully or in part by residents.
The second subcategory is Real Household Disposable Income. Household income is a
measure commonly used by the United States government and private institutions, that counts
the income of all residents over the age of 18 in each household, including not only all wages
and salaries, but such items as unemployment insurance, disability payments, child support
payments (not removing child support from wages and salaried yet counting it as overall income
actually results in this money counting toward two households, artificially inflating the income
between the two households), regular rental receipts, as well as any personal business,
investment, or other kinds of income received routinely. The residents of the household do not
have to be related to the head of the household for their earnings to be considered part of the
household's income. This amount is adjusted for inflation, which is the definition of “real”, and
income taxes, this is what makes it disposable, giving the total amount of Real Household
Disposable Income.
Standard Keynesian analysis would predict that a tax reduction would increase disposable
income, leading to an increase in consumption spending, the precise amount depending on the
marginal propensity to consume (Greiner, 2012).
Labor Markets
The Labor Markets category consists of Unemployment Rate and Annual Civilian Labor
Force, as % of population. Labor economics seeks to understand the functioning and dynamics
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of the market for labor. It looks at the suppliers of labor services (workers), the demanders of
labor services (employers), and attempts to understand the resulting pattern of wages,
employment, and income. Labor markets function through the interaction of workers and
employers.
Unemployment rate (or joblessness), as defined by the International Labor Organization,
occurs when people are without jobs and are willing to work. However, everyone without a job
isn't necessarily unemployed, at least according to the Bureau of Labor Statistics (BLS). To be
counted in the unemployment rate, you not only have to be without a job, you have to have
actively looked for work in the past four weeks. Individuals that were temporarily laid off and
are waiting to be called back to their job are still considered unemployed. However, individuals
that have given up looking for work are not counted in the unemployment rate.
The unemployment rate is a measure of the prevalence of unemployment and it is
calculated as a percentage by dividing the number of unemployed individuals by all individuals
currently in the labor force. The unemployment rate is reported by the BLS on the first Friday of
each month. It is useful to compare current month's unemployment rate compared to that of the
same month the previous year. It rules out the effects of seasonality. If the current month's
unemployment rate is compared to previous month's one, it could be higher because of
something that always happens in that month, such as the school year ending. It may not indicate
an ongoing trend.
Obviously, the unemployment rate is important as a gauge of joblessness. For this reason,
it's also a gauge of the economy's growth rate. However, the unemployment rate is a lagging
indicator because it means it measures the effect of economic events, such as a recession, and so
occurs after one has already started. It also means the unemployment rate will continue to rise
even after the economy has started to recover. The unemployment rate is another indicator used
by the Federal Reserve to determine the health of the economy when setting monetary policy.
Investors also use unemployment statistics to look at which sectors are losing jobs faster. They
can then determine which sector-specific mutual funds to sell.
A high rate of long term unemployment can have a negative effect on a country’s
economic growth potential (Carmignani, 2011). Redundancies waste resources invested in
training and educating workers and the longer each person’s period of time out of work, the
greater the loss of skill and motivation.
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The observed increase in unemployment and the
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slowdown in economic growth are related, because they stem from a common cause: an
excessively high cost of labor (Madsen and Timol, 2011). High unemployment also affects
government finances with higher spending on unemployment benefits and other welfare
payments plus falling revenues from income tax, national insurance and VAT. There is also a
strong link between unemployment and consumer spending. As consumer’s confidence falls, so
the willingness of people to spend declines and people build up their precautionary savings.
Annual Civilian Labor Force, as % of population is a term used by the U.S. Bureau of
Labor Statistics (BLS) to describe the subset of Americans who have jobs or are seeking a job
that are at least 16 years old and not serving in the military and are not institutionalized.
Employed persons are (a) all civilians who, during the reference week, did any work at all as
paid employees, in their own business, profession, or on their own farm, or who worked 15 hours
or more as unpaid workers in an enterprise operated by a member of the family, and (b) all those
who were not working but who had jobs or businesses from which they were temporarily absent
because of illness, bad weather, vacation, child-care problems, maternity or paternity leave,
labor-management disputes, job training, or other family or personal reasons, whether or not they
were paid for the time off or were seeking other jobs. Each person is counted only once, even if
he or she holds more than one job. People who do not have jobs but are not actively seeking
work are not counted as part of the labor force. Civilian labor force estimates are the product of
a federal-state cooperative program in which state employment security agencies prepare labor
force and unemployment estimates under concepts, definitions, and technical procedures
established by the Bureau of Labor Statistics (BLS).
The deceleration in labor force growth is related to the aging of the population—a
national trend caused by lower birth rates and the progression of the baby boom generation
through ever-older cohorts. Since labor is a major factor of economic production, the slowdown
in labor force growth will likely dampen economic growth.
The national unemployment statistics published monthly by BLS are obtained from the
Current Population Survey (CPS), a survey of households conducted for BLS by the Census
Bureau. The size of the CPS is sufficiently large to obtain reliable annual average unemployment
estimates for all states and the District of Columbia. County estimates, which are controlled to
the CPS-based state totals, are then derived through the use of statistics derived from state
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unemployment insurance operations, as well as adjustments based on data from the CPS,
decennial census, and other sources.
Taxes and Income
Taxes and Income category consists of Total tax revenue, as % of GDP and Income
inequality. Taxes are a sum of money demanded by a government for its support or for specific
facilities or services that is extracted from income, property, sales, etc. Whereas income is the
monetary payment received for goods or services, or from other sources, as rents or investments.
Tax revenue is the income that is gained by governments through taxation. Tax revenue can be
grouped into three main categories or types: indirect taxes defined as taxes linked to production
and imports (such as value added taxes - VAT), direct taxes consisting of current taxes on
income and wealth plus capital taxes, and social contributions that include actual social
contributions (for paying into social security funds or other social insurance schemes) as well as
imputed social contributions. Tax revenues on purchases can come from two forms: 'tax' itself is
a percentage of the price added to the purchase (such as sales tax in US states), while 'duty' is a
fixed amount added to the purchase price (such as is commonly found on cigarettes). In order to
calculate the total tax, the effective tax rate is multiplied by the quantity supplied. Just as there
are different types of tax, the form in which tax revenue is collected also differs; furthermore, the
agency that collects the tax may not be part of central government, but may be an alternative
third-party licensed to collect tax which they themselves will use.
Total tax revenue as a percentage of GDP, however, varies from year to year. The main
reasons are changes in economic activity (affecting levels of employment, sales of goods and
services, etc.) and in tax legislation (affecting tax rates, the tax base, thresholds, exemptions,
etc.). For example, the economic and financial crisis in 2009 together with the measures of fiscal
policy adopted in the countries has had a strong impact on the level and composition of tax
revenue, although first effects had already become visible in 2008. It should be noted, however,
that even when using accrual methods of recording, the effects of changes in legislation or
economic activity tend to have a delayed impact on tax revenue.
Recent proposals suggested that by reducing marginal tax rates, or by replacing the
current federal income tax with a consumption type tax, the United States an experience
increased work effort, saving, and investment, resulting in faster economic growth. A number of
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recent theoretical studies have used endogenous growth models to simulate the effects of a
fundamental tax reform on economic growth. All of these studies conclude that reducing the
distorting effects of the current tax structure would permanently increase economic growth
(Engen & Skinner, 1996; Spataro and Renström, 2012).
Income inequality is the unequal distribution of household or individual income across
the various participants in an economy. Income inequality is often presented as the percentage of
income to a percentage of population. It is often associated with the idea of income "fairness". It
is generally considered "unfair" if the rich have a disproportionally larger portion of a country's
income compared to their population. The causes of income inequality can vary significantly by
region, gender, education and social status. Economists are divided as to whether income
equality is ultimately positive or negative and what are the implications of such disparity.
The link between factor income distribution and economic growth rests upon the
proposition that capital accumulation drives economic growth and that the propensity to save out
of wages is smaller than the propensity to save out of profits. Accordingly, the greater the
proportion of income accruing to owners of capital, the higher the rate of accumulation and
economic growth.
MATHEMATICAL EVALUATION
The next step in the creation of the group‘s comparison of Economic Growth was to have
a method to take the data from Table 1 and alter it into terms that could be compared with one
another. To do this, we used a ranking system to scale the data. We took the data from Table 1
and created a ranking system for each subcategory. The scale for each subcategory ranged from 0
to 9.
We, based on the various information discovered during research, consistently created the
scale. For example, in the first main category of Expenditure & GDP, we created a scale for each
of the six subcategories. The raw data from the first subcategory Government net lending, as a
percentage of GDP on Economic Growth was converted to a 0-to-9 scale by ranking the lowest
percentage value near 0 and the highest percentage value near 9. The numbers between 0 and 9
were then organized to correlate with the numbers in the middle. This was done because the
lowest number was near -10.53 and the highest number was near 0.71. We did a similar analysis
for all subcategories. In all cases though, the better the country in a subcategory, the higher the
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ranking, and the closer to ranking of 9 and the worse a countries was the closer the rank would
be to 0. Under this method, no matter how poor a country‘s subcategory number, it could not
have a negative rating, only a rating between 0 and 9. The information about the scales for each
subcategory can be seen in the appendix.
After creating the multiple scales for all the subcategories, a new table was created. We
converted the raw data obtained and presented in Table 1 into Table 2. Table 2 presents all the
data in a comparable format. All the data are now between a score of 0 and 9. The higher the
numbers in each subcategory in table 2 indicate the better performance.
PARETO OPTIMIZATION
The next step in the process was to create Table 3. Table 3 is created through taking the
data from table 2 and using linear programming to create a ranking system. Table 3 takes the
data from table 2 and converts it into scores out of 100 for each main category. The maximum
score a country could have in a main category is 100 and the lowest score possible would be
close to zero. The higher a score in each main category indicates the better Economic Growth
components.
We used this basic equation in the linear programming process to create Table 3. The
equation is used for each main heading and subcategories to arrive at a ranking score for each
country. It is assumed that the model is linear.
Let
g = the number of categories considered for international comparison,
Mijr = the j-th measurement of the i-th system under category r,
Zkr = the score of the k-th system under category r,
Wjr = the weight to be assigned to measurement j under category r,
Mr = the number of measurements under category r,
n = the number of systems,
Zk = the overall score of the k-th system,
The score of the k-th education system under category r is calculated via the following linear
program:
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Mr
Z kr  MaxW jr M
j 1
ijr
Subject to the following constraints,
Mr
W
j 1
jr
M
 100
ijr
W jr  0
i.
j.
Again, after repeating the above linear program r times for r different categories,
g
Z k   Z kr
r 1
Table 2 shows the measurements of the five classes of each country under study. The
linear programming model discussed above has some restrictions regarding Wjr. The Wjr must
be strictly positive and this way we can avoid assigning zero weight to unfavorable
measurements. That is, Wjr ≥ € > 0, where € is an infinitesably small quantity. Now,
mathematical model is applied to calculate the scores of each grouping, with lower bound Wjr ≥
0.005. The scores are summarized in Table 3. Subsequently, the total scores Zk are calculated
using above equation and are shown in the last column of Table 3. If uniform weights are not
acceptable, one can come up with differential weights for each category and the last equation can
be changed to
g
Z k  Wr Z kr
r 1
Where Wr is the weight for category number r.
The key concept of the linear programming method used is Pareto optimization. Pareto
optimization is a concept that helps describe a solution with multiple objectives. In a Paretooptimal organization any change which makes some people better off makes some others worse
off. An organization is Pareto-non-optimal if some people can be made better off without
harming anyone else. Each category can be considered as an organization and the measure as
indicators of economic growth. The comparison is relative not absolute, hence the score of a
system depends on the other sub-categories being evaluated. A linear programming model is
formulated using this concept of calculating scores.
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In solving the linear program, each category is automatically selecting different weights,
which will result in the highest possible score for that category. The important constraint
imposed on the weights is that in assigning the selected weights to every sub-category under a
given category, the resulted score should not exceed 100.
The important property of this evaluation method is that a category is not required to
accomplish a certain level of achievement for every measurement to be optimal. Concentrating
on its most suitable groupings might be more advantageous to its evaluated score. The major
part of Pareto optimization is the fact that the Pareto optimal solutions can only be improved by
making another part of the solution worse. In our example, this means in each category, in order
for a country’s economic growth to be considered superior, another country’s economic growth
has to be considered poorer.
The last column of Table 3 creates a final ranking system for the economic growth for
each country. We felt that some interpretation of the numbers was needed, as described in our
concluding remarks, so a simple average did provide a basic frame for comparing economic
growth.
CONCLUDING REMARKS
Among the nations selected for this study, Australia, Belgium, Germany, Hungary, Japan,
Netherlands, Norway, Poland, Sweden, Switzerland and United States ranks among the top
countries in Expenditure and GDP category. It makes sense to see economically challenged
countries like Portugal, Greece and Spain rank among the lowest. This finding strengthens the
fact that Euro-zone has been struggling with their economic growth.
Prices and Deflators play a big role in determining the level of inflation. This is essential
in understanding the economic growth. The highest values in Table 3 showcase the countries
with the lowest inflation rate. Japan has no inflation based on its value of 100. Sweden, Belgium
and Switzerland follow behind with lower values than Japan but still very high which speaks to
the stability of these countries and a low inflation rate which speaks positively to the potential for
economic growth. On the contrary, the countries of Hungary, Greece and Poland scored the
lowest in this category. This reflects a high inflation rate within the country and is also an
indicator for less economic growth.
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Research has shown that low interest rates help spur economic growth since a low
interest rate indicates that the cost for borrowing or investing is low. Based on the model results
the countries with the lowest interest rates are Japan, Switzerland and the United States.
However the presence of low interest rates alone does not result in economic growth. Since the
short term interest rates are set by the country’s central bank’s Japan, Switzerland and the United
States may find themselves at the top of this category because their governments have set the
interest rate low in order to try and promote economic growth given a current lull in the
economy.
In the government accounts category we looked at the overall effectiveness of the
government based on its spending and revenue. Upon looking at the results we clearly recognize
that two of the three countries in the bottom have been recently recognized for problems with
their economies. As described in the model development, low expenditure and high government
revenues are key items needed to encourage economic growth. The fact that Greece and Portugal
are among the countries at the bottom of the list highlights their inability to create economic
growth based on these indicators.
Tax policies differ from country to country and so does the impact it has on economic
growth. Taxes also affect a country’s disposable income, income inequality and total tax
revenue. Tax revenues have risen as a share of GDP across the OECD over the past 30 years. In
2007 Denmark’s government collected nearly half of its GDP as taxes, making it the most
heavily taxed among all the rich countries. France, Norway and Italy also have tax revenues of
more than 40% of GDP. At the other end of the spectrum, America and Australia are relatively
lightly taxed, with ratios of fewer than 30%. However they are not as lightly taxed as Mexico,
where the government’s tax revenues are barely a fifth of GDP. In general Europe is the most
heavily taxed region in the OECD and taxes are lowest in the Americas.
Comparative unemployment rates are used frequently in international analyses of labor
markets and are cited often in the press. In the United States, the comparative levels are
considered to be an important measure of U.S. economic performance relative to that of other
developed countries. Comparative unemployment rates also provide a springboard for
investigating the economic, institutional, and social factors that influence cross-country
differences in joblessness.
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The standardized rates, as currently published by the three organizations that make
comparisons outside of Europe (BLS, OECD, and ILO), all show a similar result: a significant
gap in unemployment rates between the United States, on the one hand, and Canada and Europe,
on the other. It is of interest to find out how much of this gap is attributable to measurement
differences that may not have been accounted for. If the gap is due mainly to conceptual
differences, then there is no reason to study why some countries appear to be doing better than
others at keeping unemployment low. On the other hand, all of the comparative programs have
noted that some differences remain for which adjustments are not made, either because they are
believed to be too small to matter or because there is no basis upon which to make regular
adjustments.
Debt and external sectors play an important role in economic growth. We discussed how
exports and imports are both important parts of the economy, and how trade deficits are not all
bad, but left unchecked over long periods of time could hurt economic growth. Sovereign debt is
also an important part of economic growth where if debt is left unchecked, more a countries
budget is going to pay for debt rather than being reinvested back into the economy. Higher debt
can also weaken a nation’s currency and make it harder to borrow in the future to spur economic
growth. For those reasons, low debt is beneficial to economic growth.
It is worth noting that Greece, due to internal economical crisis, scored lowest in overall
categories. A clear indication that economic outlook for Greece is not sustainable and faces
tough challenges ahead. Norway on the other hand ranked toped in overall economic forecast. It
only makes sense as the country was recently mentioned in best places to do business with
incredibly satisfying living standards.
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TABLE 1-A: Raw Data
EXPENDITURE & GDP
EXTERNAL
DISPOSIBLE
SECTORS
INCOME
DEBT
1.1
1.2
1.3
1.4
1.5
1.6
2.1
2.2
3.1
3.2
4.1
4.2
4.3
AU
-3.33
74.84
14891.54
48348.26
9.90
19.79
-4.41
19.79
43740.00
5.00
25.30
-5.89
8.15
AS
-4.37
74.31
13971.97
49739.05
4.10
59.20
3.18
59.20
46710.00
0.90
78.60
-4.62
64.31
BE
-4.94
70.08
12801.18
47187.21
2.86
85.69
-2.53
85.69
45420.00
1.80
100.70
-4.20
95.29
CA
-4.88
75.31
15775.71
45002.85
1.44
35.26
0.51
35.26
41950.00
1.40
84.20
-5.50
35.71
DE
-4.61
70.13
16416.98
62156.99
-3.31
55.09
2.19
55.09
58980.00
-1.10
55.50
-2.91
32.48
July 2-3, 2013
Cambridge, UK
28
2013 Cambridge Business & Economics Conference
ISBN : 9780974211428
FI
-3.31
95.83
14613.60
50905.01
-0.36
46.96
3.01
46.96
47160.00
2.20
57.40
-2.77
37.81
FR
-7.36
73.65
13705.31
44117.04
0.50
26.89
-2.25
26.89
42390.00
1.70
94.10
-7.02
37.60
GE
-3.96
103.82
14099.35
44264.06
2.53
47.47
6.66
47.47
43330.00
-1.00
87.00
-3.29
60.79
GR
-8.29
92.14
11182.39
30883.63
-7.64
23.44
-14.53
23.44
27240.00
-2.90
147.30
-10.41
43.77
HU
-4.24
69.30
4036.46
15485.22
-2.60
81.04
-7.15
81.04
12990.00
-5.40
85.60
-4.23
125.70
IT
-5.04
83.10
11595.59
38382.31
-4.00
28.88
-3.40
28.88
35090.00
-2.90
126.80
-4.49
106.55
JA
-7.69
105.24
22364.31
38212.27
-2.58
17.55
3.23
17.55
42150.00
-0.70
199.70
-8.14
183.50
NE
-5.84
88.76
12698.39
53106.46
5.06
76.55
4.78
76.55
49720.00
0.10
71.40
-5.30
49.87
NO
-9.52
58.83
20273.06
93586.68
2.04
48.63
18.53
48.63
85380.00
4.50
49.50
10.52
26.06
PO
-7.87
83.17
3790.49
13885.65
8.23
39.90
-5.08
39.90
12420.00
4.80
62.40
-7.91
47.08
PT
-7.31
80.29
7972.79
23716.39
-1.85
32.48
-12.09
32.48
21860.00
2.80
103.10
-9.17
81.14
SP
-9.17
76.67
9669.45
34988.19
-4.76
26.47
-9.57
26.47
31650.00
1.90
66.10
-9.25
46.14
SE
-1.17
100.18
15625.31
52730.78
1.73
53.41
9.79
53.41
49930.00
1.60
49.10
-0.34
37.84
SW
-0.71
72.66
21961.13
65699.35
0.50
56.50
2.40
56.50
70350.00
0.90
40.20
0.50
20.71
UK
-9.60
85.92
19074.59
43286.04
-5.01
29.26
-1.63
29.26
38540.00
1.00
82.40
-10.34
75.06
US
-10.53
85.92
27320.65
46971.33
-5.08
12.89
-4.91
12.89
47140.00
0.90
93.60
-10.63
53.09
TABLE 1-B: Raw Data
PRICES & DEFLATORS
MONETARY DATA
GOVERNMENT
LABOUR
TAXES &
ACCOUNTS
MARKETS
INCOME
5.1
5.2
6.1
6.2
7.1
7.2
7.3
8.1
8.2
9.1
9.2
AU
115.80
104.18
5.37
4.68
37.41
33.30
-4.11
5.20
11867.70
27.10
35.20
AS
109.50
106.71
3.23
0.81
52.27
48.79
-3.48
4.30
4272.90
42.80
29.10
BE
110.60
101.13
3.35
0.81
53.96
48.04
-5.92
6.80
4894.60
43.20
33.00
CA
108.90
118.80
3.24
0.77
39.63
39.76
0.13
7.30
18525.00
31.10
32.60
DE
111.10
121.57
2.93
0.70
51.90
55.27
3.37
4.20
2877.00
48.20
24.70
FI
109.60
111.59
3.01
0.81
49.41
47.04
-2.37
6.90
2661.70
43.10
26.90
FR
107.80
119.30
3.12
0.81
55.99
48.42
-7.57
9.60
28444.00
41.90
32.70
GE
108.20
110.50
2.74
0.81
47.58
44.44
-3.15
6.50
41495.00
37.00
28.30
GR
117.20
130.64
9.09
0.81
50.44
36.85
-13.58
16.30
5021.00
29.40
34.30
HU
130.00
160.53
7.28
6.18
49.76
45.65
-4.11
10.70
4229.90
39.10
26.90
IT
109.90
125.91
4.04
0.81
51.87
46.63
-5.24
8.30
24714.20
43.50
36.00
JA
99.60
90.34
1.15
0.38
35.64
31.52
-4.13
4.10
65900.00
28.10
24.90
NE
108.00
121.85
2.99
0.81
49.99
45.02
-4.97
5.60
8760.00
39.10
49.50
NO
111.90
105.54
3.53
2.50
46.15
56.01
9.86
3.20
2588.00
41.00
25.80
PO
115.10
123.56
5.78
3.93
43.20
39.52
-3.68
11.80
17660.00
34.30
34.50
PT
108.90
104.90
5.40
0.81
48.05
38.79
-9.25
12.40
5555.00
35.20
38.50
SP
112.40
156.87
4.25
0.81
45.80
34.64
-11.16
21.52
22983.00
30.70
34.70
SE
107.90
100.00
2.89
0.50
52.67
51.88
-0.79
6.80
4962.00
46.40
25.00
SW
104.50
110.71
1.63
0.19
36.69
38.07
1.38
2.90
4761.10
30.30
33.70
UK
114.50
107.43
3.61
0.69
47.17
36.91
-10.26
8.30
31196.00
34.30
36.00
US
111.70
109.62
3.21
0.31
43.25
30.37
-12.88
9.00
153889.00
24.00
40.80
July 2-3, 2013
Cambridge, UK
29
2013 Cambridge Business & Economics Conference
ISBN : 9780974211428
Note 1:
AU – Australia, AS – Austria, BE – Belgium, CA – Canada, DE – Denmark, FI – Finland, FR – France, GE – Germany, GR – Greece, HU –
Hungary, IT – Italy, JA – Japan, NE – Netherlands, NO – Norway, PO – Poland, SP – Spain, SE – Sweden, TU –Turkey, SW – Switzerland, UK
– United Kingdom, US – United States
Note 2:
1.1- Government net lending, as a percentage of GDP. 1.2 - Final consumption expenditure, etc. (% of GDP) (2007, 2008 World Bank). 1.3 Private final consumption expenditure, per capita (2008, World Bank). 1.4 - Gross domestic product, per capita (2008). 1.5 - Gross fixed capital
formation (annual % growth) (2008 World Bank). 1.6 - Exports of goods and services (% of GDP) (2008 World Bank). 2.1 - Current account
balance, as a percentage of GDP. 2.2 - Exports of goods and services (% of GDP) (2008 World Bank). 3.1 - Gross National Income per capita.
3.2 - Real household disposable income. 4.1 - General government gross financial liabilities, % of nominal GDP, forecast. 4.2 - General
government financial balances, % of nominal GDP, forecast. 4.3 - Total central government debt, % of GDP. 5.1 - Consumer price index (index
2005 = 100). 5.2 - Gross domestic product, deflator, market prices. 6.1 - Long-term interest rate. 6.2 - Short-term interest rate. 7.1 - Government
total expenditures as a percentage of GDP. 7.2 - Government revenue as a percentage of GDP. 7.3 - Government net lending, as a percentage of
GDP. 8.1 - Unemployment rate. 8.2 - Annual Civilian Labor Force, as % of population. 9.1 - Total tax revenue as % of GDP. 9.2 - Income
inequality.
DATA REFERENCES
OECD Key ICT Indicators. (n.d.). In Organization for Economic Co-operation and Development. Retrieved April 20, 2009, from
http://www.oecd.org/sti/ICTindicators
OECD Statistics (GDP, unemployment, income, population, labor, education, trade, finance, prices...). (n.d.). Retrieved April 20, 2009, from
http://stats.oecd.org/WBOS/index.aspx
Data | The World Bank. (n.d.). Retrieved from http://data.worldbank.org/
TABLE 2-A: Converted Scores
EXPENDITURE & GDP
EXTERNAL SECTORS
DISPOSIBLE INCOME
DEBT
1.1
1.2
1.3
1.4
1.5
1.6
2.1
2.2
3.1
3.2
4.1
4.2
4.3
AU
6.61
3.10
4.25
3.89
9.00
0.85
2.76
0.85
3.86
9.00
9.00
6.98
9.00
AS
5.65
3.00
3.89
4.05
6.02
5.73
4.82
5.73
4.23
5.45
6.25
6.44
6.12
BE
5.13
2.18
3.45
3.76
5.38
9.00
3.27
9.00
4.07
6.23
5.11
6.26
4.53
CA
5.18
3.20
4.58
3.51
4.66
2.76
4.09
2.76
3.64
5.88
5.96
6.81
7.59
DE
5.43
2.19
4.83
5.45
2.22
5.22
4.55
5.22
5.74
3.72
7.44
5.71
7.75
FI
6.62
7.17
4.14
4.18
3.74
4.21
4.78
4.21
4.29
6.58
7.34
5.65
7.48
FR
2.90
2.87
3.79
3.41
4.17
1.73
3.34
1.73
3.70
6.14
5.45
7.46
7.49
GE
6.03
8.73
3.94
3.43
5.21
4.27
5.77
4.27
3.81
3.81
5.82
5.87
6.30
GR
2.06
6.46
2.83
1.92
0.00
1.30
0.00
1.30
1.83
2.16
2.70
8.90
7.17
HU
5.77
2.03
0.09
0.18
2.58
8.43
2.01
8.43
0.07
0.00
5.89
6.28
2.97
IT
5.03
4.71
2.99
2.77
1.87
1.98
3.03
1.98
2.80
2.16
3.76
6.39
3.95
JA
2.61
9.00
7.10
2.75
2.60
0.58
4.83
0.58
3.67
4.07
0.00
7.94
0.00
NE
4.30
5.80
3.41
4.43
6.52
7.87
5.26
7.87
4.60
4.76
6.62
6.73
6.86
NO
0.93
0.00
6.30
9.00
4.96
4.42
9.00
4.42
9.00
8.57
7.75
0.00
8.08
PO
2.44
4.72
0.00
0.00
8.14
3.34
2.57
3.34
0.00
8.83
7.09
7.84
7.00
PT
2.95
4.16
1.60
1.11
2.97
2.42
0.66
2.42
1.16
7.10
4.99
8.38
5.25
SP
1.25
3.46
2.25
2.38
1.47
1.68
1.35
1.68
2.37
6.32
6.89
8.41
7.05
SE
8.59
8.02
4.53
4.39
4.81
5.01
6.62
5.01
4.63
6.06
7.77
4.62
7.48
SW
9.00
2.68
6.95
5.85
4.18
5.39
4.61
5.39
7.15
5.45
8.23
4.26
8.36
UK
0.85
5.25
5.85
3.32
1.35
2.02
3.51
2.02
3.22
5.54
6.05
8.88
5.57
US
0.00
5.25
9.00
3.74
1.31
0.00
2.62
0.00
4.28
5.45
5.48
9.00
6.69
July 2-3, 2013
Cambridge, UK
30
2013 Cambridge Business & Economics Conference
ISBN : 9780974211428
TABLE 2-B: Converted Scores
PRICES & DEFLATORS
MONETARY DATA
GOVERNMENT ACCOUNTS
LABOUR
TAXES &
MARKETS
INCOME
5.1
5.2
6.1
6.2
7.1
7.2
7.3
8.1
8.2
9.1
9.2
AU
4.20
7.23
4.22
2.25
8.22
1.03
3.64
7.89
0.55
7.85
5.19
AS
6.07
6.90
6.64
8.07
1.65
6.47
3.88
8.32
0.10
2.01
7.40
BE
5.74
7.62
6.51
8.07
0.90
6.20
2.94
7.11
0.14
1.86
5.99
CA
6.25
5.35
6.63
8.13
7.24
3.30
5.26
6.87
0.95
6.36
6.13
DE
5.60
5.00
6.98
8.23
1.81
8.74
6.51
8.37
0.02
0.00
9.00
FI
6.04
6.28
6.89
8.07
2.91
5.85
4.31
7.07
0.00
1.90
8.20
FR
6.57
5.29
6.77
8.07
0.00
6.34
2.31
5.76
1.54
2.34
6.10
GE
6.45
6.42
7.20
8.07
3.72
4.94
4.01
7.26
2.31
4.17
7.69
GR
3.79
3.83
0.00
8.07
2.45
2.27
0.00
2.52
0.14
6.99
5.52
HU
0.00
0.00
2.05
0.00
2.76
5.36
3.64
5.23
0.10
3.38
8.20
IT
5.95
4.44
5.72
8.07
1.82
5.71
3.20
6.39
1.32
1.75
4.90
JA
9.00
9.00
9.00
8.71
9.00
0.40
3.63
8.42
3.77
7.48
8.93
NE
6.51
4.96
6.91
8.07
2.65
5.14
3.31
7.69
0.37
3.38
0.00
NO
5.36
7.05
6.30
5.53
4.35
9.00
9.00
8.85
0.00
2.68
8.60
PO
4.41
4.74
3.75
3.38
5.66
3.21
3.80
4.70
0.90
5.17
5.44
PT
6.25
7.13
4.18
8.07
3.51
2.96
1.66
4.41
0.18
4.83
3.99
SP
5.21
0.47
5.49
8.07
4.51
1.50
0.93
0.00
1.21
6.51
5.37
SE
6.54
7.76
7.03
8.53
1.47
7.55
4.91
7.11
0.14
0.67
8.89
SW
7.55
6.39
8.46
9.00
8.54
2.70
5.74
9.00
0.13
6.66
5.73
UK
4.59
6.81
6.21
8.25
3.90
2.30
1.27
6.39
1.70
5.17
4.90
US
5.42
6.53
6.66
8.82
5.63
0.00
0.27
6.05
9.00
9.00
3.16
Note 1:
AU – Australia, AS – Austria, BE – Belgium, CA – Canada, DE – Denmark, FI – Finland, FR – France, GE – Germany, GR – Greece, HU –
Hungary, IT – Italy, JA – Japan, NE – Netherlands, NO – Norway, PO – Poland, SP – Spain, SE – Sweden, TU –Turkey, SW – Switzerland, UK
– United Kingdom, US – United States
Note 2:
1.1- Government net lending, as a percentage of GDP. 1.2 - Final consumption expenditure, etc. (% of GDP) (2007, 2008 World Bank). 1.3 Private final consumption expenditure, per capita (2008, World Bank). 1.4 - Gross domestic product, per capita (2008). 1.5 - Gross fixed capital
formation (annual % growth) (2008 World Bank). 1.6 - Exports of goods and services (% of GDP) (2008 world bank). 2.1 - Current account
balance, as a percentage of GDP. 2.2 - Exports of goods and services (% of GDP) (2008 world bank). 3.1 - Gross National Income per capita. 3.2
- Real household disposable income. 4.1 - General government gross financial liabilities, % of nominal GDP, forecast. 4.2 - General government
financial balances, % of nominal GDP, forecast. 4.3 - Total central government debt, % of GDP. 5.1 - Consumer price index (index 2005 = 100).
5.2 - Gross domestic product, deflator, market prices. 6.1 - Long-term interest rate. 6.2 - Short-term interest rate. 7.1 - Government total
expenditures as a percentage of GDP. 7.2 - Government revenue as a percentage of GDP. 7.3 - Government net lending, as a percentage of GDP.
8.1 - Unemployment rate. 8.2 - Annual Civilian Labor Force, as % of population. 9.1 - Total tax revenue as % of GDP. 9.2 - Income inequality.
TABLE 3: Final Grades
COUNTRY
NO
EXPENDITURE
EXTERNAL
DISPOSIBLE
& GDP
SECTORS
INCOME
100.00
100.00
100.00
July 2-3, 2013
Cambridge, UK
DEBT
86.12
PRICES AND
MONETARY
GOVERNMENT
LABOUR
TAXES AND
DEFLATORS
DATA
ACCOUNTS
MARKETS
INCOME
78.34
70.03
100.00
98.39
95.85
AVERAGE
92.08
31
2013 Cambridge Business & Economics Conference
ISBN : 9780974211428
SW
100.00
75.81
79.40
91.46
83.88
100.00
100.00
100.00
83.10
90.40
JP
100.00
53.72
46.93
88.21
100.00
100.00
100.00
100.00
100.00
87.65
SE
100.00
87.40
69.14
86.35
86.24
94.82
83.89
79.12
98.86
87.31
DE
88.64
74.02
63.82
82.68
62.17
91.49
97.11
93.02
100.00
83.66
BE
100.00
100.00
70.49
74.34
84.63
89.65
68.92
79.12
66.73
81.54
AU
100.00
30.61
100.00
100.00
80.28
46.85
92.77
88.42
93.74
81.41
AS
94.62
79.99
62.28
81.63
76.68
89.65
71.84
92.48
82.47
81.29
US
100.00
29.10
62.33
100.00
72.53
98.00
62.60
100.00
100.00
80.51
FI
92.31
67.74
74.40
81.59
69.73
89.65
65.80
78.52
91.33
79.01
GE
100.00
75.44
44.28
75.04
71.71
89.65
67.76
84.57
85.93
77.15
CA
80.18
51.43
66.39
82.97
69.41
90.32
91.23
77.87
81.15
76.77
NE
100.00
100.00
55.20
85.76
72.37
89.65
58.75
85.95
37.60
76.14
UK
82.43
41.39
62.30
100.00
75.65
91.65
52.52
73.85
65.73
71.72
PO
100.00
44.91
98.08
96.65
52.67
41.69
75.41
53.67
67.19
70.03
FR
69.22
37.85
69.23
85.72
73.03
89.65
70.40
66.59
67.99
69.96
PT
52.43
26.90
78.85
93.09
79.26
89.65
53.00
49.18
59.89
64.69
IT
61.81
37.51
31.07
70.95
66.12
89.65
63.42
73.16
54.62
60.92
SP
48.59
22.99
70.19
100.00
57.89
89.65
53.26
13.48
80.61
59.63
HU
100.00
93.61
0.78
78.48
0.00
22.80
61.16
58.15
91.49
56.27
GR
72.49
14.48
24.85
98.93
42.58
89.65
38.39
28.23
85.92
55.06
Note 1:
AU – Australia, AS – Austria, BE – Belgium, CA – Canada, DE – Denmark, FI – Finland, FR – France, GE – Germany, GR – Greece, HU –
Hungary, IT – Italy, JA – Japan, NE – Netherlands, NO – Norway, PO – Poland, SP – Spain, SE – Sweden, TU –Turkey, SW – Switzerland, UK
– United Kingdom, US – United States
July 2-3, 2013
Cambridge, UK
32