The role of regulation and productive government spending in dynamic macroeconomic models

The three chapters of my dissertation study how fiscal policy affects the dynamic behavior of the Macro-economy when educational and environmental market failures are present.; In the first paper I show endogenous human capital accumulation fostered by education investment can greatly reduce the fiscal burden of the United States public pension system. I also conclude the increased human capital for the small baby bust cohort, along with beneficial factor price movements, will increase their lifetime consumption relative to trend forecasts. This result is in contrast to the standard predictions of lower lifetime consumption due to the increased social security fiscal burden.; The second chapter of my dissertation studies the long run implications of the government's education investment strategy. I show the failure of government to provide a productive human capital accumulation environment leads to the decline of per capita consumption and/or stagnation. On the other hand, I show positive changes in the education environment will lead to high growth and positive movements in the world income distribution. The ability of the model to predict these growth miracles and disasters is demonstrated using an ordered logit estimation technique and predicting transitions within the World income distribution before they actually occur. The out-of-sample transition predictions are based on a country's specific educational and political environment.; My final chapter looks at the short run and long run dynamic behavior of environmental regulation on firm level abatement R&D and pollution. I show a company's current unregulated abatement R&D efforts may not be the result of “environmentally friendly” policies, but due to expectations about future regulation. I conclude regulation, now or in the future, is required to induce companies to undertake pollution abatement and abatement R&D. I provide evidence the Kyoto Protocol is perceived as binding when companies are deciding on current pollution abatement strategies. I also show, through the appropriate use of fiscal policy, the government can achieve a policy of sustainable development when abatement R&D is present...