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Fiscal Policy and Economic Growth: An Empirical Investigation

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  • William Easterly
  • Sergio Rebelo

Abstract

This paper describes the empirical regularities relating fiscal policy variables, the level of development and the rate of growth. We employ historical data, recent cross-section data, and newly constructed public investment series. Our main findings are: (i) there is a strong association between the development level and the fiscal structure: poor countries rely heavily on international trade taxes, while income taxes are only important in developed economies; (ii) fiscal policy is influenced by the scale of the economy, measured by its population; (iii) investment in transport and communication is consistently correlated with growth while the effects of taxation are difficult to isolate empirically.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4499.

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Date of creation: Oct 1993
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Publication status: published as Easterly, William & Rebelo, Sergio. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December 1993
Handle: RePEc:nbr:nberwo:4499

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  1. Alogoskoufis, G.S. & Ploeg, F. van der, 1990. "Endogenous growth and overlapping generations," Discussion Paper 1990-72, Tilburg University, Center for Economic Research.
  2. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  3. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  4. Sicat, Gerardo P & Virmani, Arvind, 1988. "Personal Income Taxes in Developing Countries," World Bank Economic Review, World Bank Group, vol. 2(1), pages 123-38, January.
  5. Gary S. Becker & Kevin M. Murphy & Robert F. Tamura, 1990. "Human Capital, Fertility, and Economic Growth," NBER Working Papers 3414, National Bureau of Economic Research, Inc.
  6. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  7. Robert G. King & Sergio T. Rebelo, 1989. "Transitional Dynamics and Economic Growth in the Neoclassical Model," NBER Working Papers 3185, National Bureau of Economic Research, Inc.
  8. Koester, Reinhard B & Kormendi, Roger C, 1989. "Taxation, Aggregate Activity and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses," Economic Inquiry, Western Economic Association International, vol. 27(3), pages 367-86, July.
  9. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  10. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  11. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  12. Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  14. Douglas Holtz-Eakin, 1992. "Public-Sector Capital and the Productivity Puzzle," NBER Working Papers 4122, National Bureau of Economic Research, Inc.
  15. Dunn, D. & Pellechio, A., 1990. "Analyzing Taxes On Business Income With The Marginal Effective Tax Rate Model," World Bank - Discussion Papers 79, World Bank.
  16. Robert J. Barro & Chaipat Sahasakul, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," University of Chicago - George G. Stigler Center for Study of Economy and State 26, Chicago - Center for Study of Economy and State.
  17. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, vol. 47(2), pages 403-427, August.
  18. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
  19. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  20. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-38, October.
  21. Easterly, William & Rebelo, Sergio, 1992. "Marginal income tax rates and economic growth in developing countries," Policy Research Working Paper Series 1050, The World Bank.
  22. Plosser, Charles I., 1992. "The search for growth," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 57-86.
  23. Peter Pedroni & David Canning, 2004. "The Effect of Infrastructure on Long Run Economic Growth," Department of Economics Working Papers 2004-04, Department of Economics, Williams College.
  24. Cohen Daniel & Michel Philippe, 1991. "Property rights on foreign capital and long-run growth," CEPREMAP Working Papers (Couverture Orange) 9106, CEPREMAP.
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  26. repec:fth:wobaco:1083 is not listed on IDEAS
  27. Burgess, Robin & Stern, Nicholas, 1993. "Taxation and Development," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 762-830, June.
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