Understanding Modern Economic Growth: Factors, Distribution, and Public Intervention
Modern Economic Growth
Modern economic growth involves not only GDP growth but also significant changes in content and quantity. Characteristics of economic growth include:
- High growth rates
- Productivity growth
- Structural, social, and institutional transformations
- Limited from the standpoint of space
Growth Factors
Technical progress: The existence of new developments that allow for more products using the same or fewer resources, increasing productivity.
Productivity and employment: Aiming for a low unemployment rate and high labor productivity.
Proper allocation of resources: Seeking structural transformation.
Geographical location: Being closer to rich countries, both physically and politically.
Structural Changes
Structural changes lead to:
- Better resource allocation
- Increased productivity
- Improved per capita income
Transformations occur through:
- Deagrarization: The declining importance of agriculture
- Urbanization: Population shift to cities
- Industrialization
- Tertiarization: The increasing weight of tertiary activities in advanced economies
Relationship Between Economic Growth and the External Sector
The more open an economy, the greater its economic development abroad.
Distribution of Income
GDP growth increases income. There is a distinction between income and wealth: wealth is the possession of factors of production, and income is obtained from that possession.
Criteria for income distribution:
- Functional distribution: Distribution based on the function of the factor
- Personal distribution: Distribution among individuals or families in a given territory
- Territorial distribution: Distribution over territorial units (regions, countries)
Types of Income Distribution
Functional income distribution: Studies the distribution of the product among the factors involved in production.
Personal income distribution: Refers to the distribution of income among individuals or families in a given territory, measured by individual disposable income and market income.
Territorial distribution of income: Refers to how income is divided among territorial units.
Keynesian vs. Classical Economics
Classical economists (e.g., Adam Smith): Advocate for minimal state intervention in the market, limited to defense, justice, and public works.
Keynesian economists (e.g., Marx, Keynes): Advocate for public sector involvement, especially during crises.
Currently: Neoclassical, classical, and Keynesian economists, including monetarists, advocate for intervention in monetary aspects.
Objectives of Public Intervention
- Efficiency: Maximum utilization of resources
- Social justice/equity: Fair allocation of resources (horizontal: equal opportunity; vertical: fair income distribution)
- Macroeconomic stability: Smoothing the business cycle
Types of Public Sector Intervention
- Legal structure: Enacting laws and regulations
- Regulation: Enforcing rules affecting quality and quantity
- Financing: Intervening in the market through taxes and subsidies
- Production: Providing capital goods like defense and public education
- Transfers: Affecting income and wealth, not prices
State Failures
- Lack of information by governments
- Limitations in decision-making due to the political process
- Bureaucratic behavior influenced by self-interest
Equity
- Horizontal: Ensuring equal access to education, justice, etc.
- Vertical: Redistribution through progressive taxes (e.g., income tax) and income transfers (e.g., pensions)
Macroeconomic Objectives
- Price stability: Controlling inflation
- Full employment
- Economic growth
Fiscal and Monetary Policy
Macroeconomic tools are divided into:
- Fiscal policy:
- Expansionary: Increasing public spending and reducing taxes during crises to maintain full employment
- Contractionary: Reducing public spending and increasing taxes during boom periods
- Monetary policy: Controlling the money supply in the economy
Public Sector
A set of entities sharing characteristics that differentiate them from the private sector:
- Economic: Principle of authority (decision-making)
- Legal: Meeting public duty standards
- Budgetary: Subject to a public budget
Makeup of the Public Sector
- State: Social security, government ministries, parliament, congress
- State government: 17 autonomous communities + 2 autonomous cities (Ceuta and Melilla)
- Local: Municipalities, county councils, island councils
Indicators of Public Sector Size
Income, expenditure, and other indicators related to GDP.
Public Budget
A document outlining expenditures and income.
Classification of Expenditure
- Organic: Who spends?
- Economic: What is spent? (current expenditure and capital expenditure)
- Functional: Why is it spent? (program expenditures)
Classification of Revenue
- Organic: Who gets the revenue?
- Economic: Classified by nature (non-financial, financial, voluntary, tax)
Classification of Taxes
- Direct/Indirect
- Personal/Real
- Progressive/Proportional/Regressive