No abstract

sn this pper we tke ritil look t urrent iuropen regionl poliiesF pirstD we doument the motivtion for suh poliiesD tht isD the lrge inome disprities ross the regions of the iISF vrge disprities re ertinly presentF eondD we illustrte the vrious instruments dopted nd disuss their underpinnings in estlished eonomi theoriesF xextD we look t ville dtD serhing for three kinds of evideneX (IA if disprities re either growing or deresingD we onlude they re neitherY (PA whih re the mjor ftors explining suh disprities ndD in prtiulrD if they re the ftors predited y the eonomi models dopted y the gommission to justify urrent poliiesD we onlude this is most ertinly not the seY (QA if there re ler signs tht i poliiesD s opposed to other soil nd eonomi ftorsD re tully reduing suh dispritiesD we nnot find ny ler sign of suh desired imptF yur onlusion is tht regionl nd struturl poliies serve mostly redistriutionl purposeD motivted y the nture of the politil equiliri upon whih the iuropen nion is uiltF hey hve little reltionship with fostering eonomi growthF his sts serious dout on their soil vlue ndD furthermoreD strongly questions extending suh poliies to future memers of the iuropen nionF e suessful i enlrgementD in our viewD lls for n immedite nd drsti revision of regionl eonomi poliiesF wihele foldrin nd pio gnov ionomi oliy epril PHHI rinted in qret fritin

Two modifications are introduced into the standard real-business-cycle model: habit preferences and a two-sector technology with limited intersectoral factor mobility. The model is consistent with the observed mean risk-free rate, equity premium, and Sharpe ratio on equity. In addition, its business-cycle implications represent a substantial improvement over the standard model. It accounts for persistence in output, comovement of employment across different sectors over the business cycle, the evidence of "excess sensitivity" of consumption growth to output growth, and the "inverted leading-indicator property of interest rates," that interest rates are negatively correlated with future output.

When credit markets to finance investment in human capital are missing, the competitive equilibrium allocation is inefficient. When generations overlap, this failure can be mitigated by properly designed social arrangements. We show that public financing of education and public pensions can be designed to implement an intergenerational transfer scheme supporting the complete market allocation. Neither the public financing of education nor the pension scheme we consider resemble standard ones. In our mechanism, via the public education system, the young borrow from the middle aged to invest in human capital. They pay back the debt via a social security tax, the proceedings of which finance pension payments. When the complete market allocation is achieved, the rate of return implicit in this borrowing-lending scheme should equal the market rate of return. Copyright The Review of Economic Studies Limited, 2005.