An Econometric Analysis of Fiscal Policy Budget Constraints in Endogenous Growth Models
AbstractThis paper provides an econometric theory for examining the predictions of the public-policy endogenous growth models of Barro (1990) and others that suggest that unlike distortionary taxation and productive expenditures, nondistortionary taxation and nonproductive expenditures have no direct effect on the rate of growth. We prove that the estimates of all other regressions can be produced using only the estimates of the regression equation originally chosen. This illustrates from a statistical point of view why we are indifferent to the choice of omitted variable. Hence, decisions regarding omitted variables must incorporate criteria from the endogenous growth models. A numerical example using Kneller et al. (1999) sheds light on how the econometric analysis works in practice, and clarifies its significance for empirical study.
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Bibliographic InfoPaper provided by Graduate School of Economics and Management, Tohoku University in its series TERG Discussion Papers with number 232.
Length: 20 pages
Date of creation: Feb 2008
Date of revision:
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