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Why Run a Million Regressions? Endogenous Policy and Cross-Country Growth Empirics

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  • Günther Rehme

Abstract

This paper analyzes the link between long-run economic growth and policy that depends on important economic fundamentals. In simple growth regressions the measured policy effects would then generally be biased. Using a widely quoted theoretical model, the signs of the biases are derived. It is shown that the usually reported effects on growth of tax-rate variables related to GDP - the ratio of public to total investment and that of redistributive transfers to GDP - would generally be biased downwards. The signed biases provide a theory-based lens through which some empirical, yet theoretically puzzling, results can be viewed and subsequently discussed.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 166 (2010)
Issue (Month): 4 (December)
Pages: 735-759

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201012)166:4_735:wramre_2.0.tx_2-l

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Cited by:
  1. Rehme, Günther, 2014. "Endogenous (re-)distributive policies and economic growth: A comparative static analysis," Economic Modelling, Elsevier, vol. 40(C), pages 355-366.
  2. Rehme, Günther, 2007. "Endogenous Policy and Cross-Country Growth Empirics," Darmstadt Discussion Papers in Economics 35720, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).

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