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Fiscal Policy and Economic Growth: An Empirical Investigation

  • Easterly, William
  • Rebelo, Sérgio

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: first, 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; second, fiscal policy is influenced by the scale of the economy, measured by its population; and third, investment in transport and communication is consistently correlated with growth while the effects of taxation are difficult to isolate empirically.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 885.

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Date of creation: Jan 1994
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Handle: RePEc:cpr:ceprdp:885
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  1. 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.
  2. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
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  7. Becker, Gary S & Murphy, Kevin M & Tamura, Robert, 1990. "Human Capital, Fertility, and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S12-37, October.
  8. repec:fth:wobaco:1083 is not listed on IDEAS
  9. Barro, Robert J. & Sahasakul, Chaipat, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," Scholarly Articles 3451293, Harvard University Department of Economics.
  10. Alogoskoufis, G.S. & van der Ploeg, F., 1990. "Endogenous growth and overlapping generations," Discussion Paper 1990-72, Tilburg University, Center for Economic Research.
  11. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  12. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  13. King, R.G. & Rebelo, S.T., 1989. "Transitional Dynamics And Economic Growth In The Neoclassical Model," RCER Working Papers 206, University of Rochester - Center for Economic Research (RCER).
  14. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  15. Easterly, William & Rebelo, Sergio, 1992. "Marginal income tax rates and economic growth in developing countries," Policy Research Working Paper Series 1050, The World Bank.
  16. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  17. Clarke, George R. G., 1992. "More evidence on income distribution and growth," Policy Research Working Paper Series 1064, The World Bank.
  18. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  19. Cohen Daniel & Michel Philippe, 1991. "Property rights on foreign capital and long-run growth," CEPREMAP Working Papers (Couverture Orange) 9106, CEPREMAP.
  20. Douglas Holtz-Eakin, 1992. "Public-Sector Capital and the Productivity Puzzle," NBER Working Papers 4122, National Bureau of Economic Research, Inc.
  21. Dunn, D. & Pellechio, A., 1990. "Analyzing Taxes On Business Income With The Marginal Effective Tax Rate Model," World Bank - Discussion Papers 79, World Bank.
  22. 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.
  23. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
  24. 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.
  25. Plosser, Charles I., 1992. "The search for growth," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 57-86.
  26. Burgess, Robin & Stern, Nicholas, 1993. "Taxation and Development," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 762-830, June.
  27. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
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