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Postwar British Economic Growth and the Legacy of Keynes

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  • Cooley, Thomas F
  • Ohanian, Lee E

Abstract

Following John Maynard Keynes's recommendations, Britain taxed capital income at a much higher rate than the United States during the war and for much of the postwar period. This paper presents a quantitative analysis of the policies designed by Keynes using an endogenous growth model and the neoclassical growth model. The implications of tax-smoothing policies are also evaluated. The authors find that the welfare costs of Keynes's policies were very high relative to a tax-smoothing policy and argue that Britain's poor macroeconomic performance in the early postwar period reflects the high tax rates levied on capital income. Copyright 1997 by the University of Chicago.

Suggested Citation

  • Cooley, Thomas F & Ohanian, Lee E, 1997. "Postwar British Economic Growth and the Legacy of Keynes," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 439-472, June.
  • Handle: RePEc:ucp:jpolec:v:105:y:1997:i:3:p:439-72
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    1. repec:ucp:bknber:9780226304557 is not listed on IDEAS
    2. Barro, Robert J., 1987. "Government spending, interest rates, prices, and budget deficits in the United Kingdom, 1701-1918," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 221-247, September.
    3. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 126-150, October.
    4. 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 1008-1038, October.
    5. Joines, Douglas H, 1981. "Estimates of Effective Marginal Tax Rates on Factor Incomes," The Journal of Business, University of Chicago Press, vol. 54(2), pages 191-226, April.
    6. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, July.
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