Policy variability and economic growth
AbstractThis paper explores the effect of policy variability (or frequency of regime switching) on economic growth and welfare. The authors study a one-sector growth model where investment can be subsidized at either a positive rate or not subsidized at all. They find that the lack of persistence in policies per se need not be welfare reducing and that it is likely to decrease growth. Higher variability implies more frequent changes in consumption and investment. But, by creating a stronger intertemporal link across regimes, variability reduces the fluctuation in investment rates, thus decreasing the magnitude of changes in consumption and increasing welfare. Copyright 1996 by The Review of Economic Studies Limited.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 30.
Date of creation: Feb 1993
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Web page: http://www.econ.upf.edu/
Other versions of this item:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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