Fiscal Policy and Growth: a Survey

The lack of convergence of growth rates among the world economies is probably one of the most debated topics in the last few years in theoretical and empirical research. In this period we have observed a strong resurgence of the debate about long-run growth, starting from the initial contributions by Paul Romer (1986) and Robert Lucas (1988) who opened the so called Endogenous Growth Theory or New Growth Theory . The reason of this resurgence of interest lies in two important aspects left unsolved by the theoretical attempts of the 60s and 70s: first, the need to explain long-run growth determinants and secondly, to provide a careful explanation to the lack of convergence of growth rates among world economies footnote . The biggest achievement of the Endogenous Growth Theory is represented by the reconciliation of the diminishing returns hypothesis with the typical finding of empirical analyses, i.e. a growth rate continuously increasing.