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Relative Prices, Economic Growth and Tax Policy

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  • Michael Sarel
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    Abstract

    This paper examines the role of relative prices in economic growth and the possibility that relative prices are (or can be) partly determined by tax policy. In the opening section, the paper links relative prices to tax policy. Using an extension to a standard model of economic growth, it demonstrates that under certain conditions a simple tax policy, that determines the relative price of investment, can affect the investment rate and the permanent growth rate of the economy. The paper develops a method to obtain consistent data on relative prices for a large set of countries. Using these data in cross-country regressions, it examines how economic growth is affected by relative prices. The results of these empirical tests identify the relative prices as a key factor affecting investment and growth.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=1952
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 95/113.

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    Length: 28
    Date of creation: 01 Nov 1995
    Date of revision:
    Handle: RePEc:imf:imfwpa:95/113

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    Cited by:
    1. Diego Restuccia & Carlos Urrutia, 1999. "Public Policy, Price Distortions, and Investment Rates," UWO Department of Economics Working Papers 9901, University of Western Ontario, Department of Economics.

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