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Why Run a Million Regressions? Endogenous Policy and Cross-Country Growth Empirics

  • Rehme, G¸nther

    (Technische Universit”t Darmstadt)

This paper analyses the link between growth and public policy when the latter depends on economically important fundamentals. When policy is endogenous the measured effects of policy on growth will generally be biased. Using a widely quoted theoretical model, the signs of the biases are derived. It is shown that the usually reported effects on growth of tax rate variables related to GDP, the ratio of public investment to total investment and the ratio of redistributive transfers to GDP are generally biased downwards. Based on these signed biases the paper discusses some empirical results that seem puzzling from a theoretical viewpoint.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 157.

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Date of creation: 29 Aug 2002
Date of revision:
Handle: RePEc:ecj:ac2002:157
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  1. Robert J. Barro, 1991. "A Cross-Country Study of Growth, Saving, and Government," NBER Chapters, in: National Saving and Economic Performance, pages 271-304 National Bureau of Economic Research, Inc.
  2. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-89, September.
  3. Xavier Sala-i-Martin, 1995. "A positive theory of social security," Economics Working Papers 108, Department of Economics and Business, Universitat Pompeu Fabra.
  4. 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.
  5. Spanos,Aris, 1986. "Statistical Foundations of Econometric Modelling," Cambridge Books, Cambridge University Press, number 9780521269124, November.
  6. Schlicht, Ekkehart, 1975. "A Neoclassical Theory of Wealth Distribution," Munich Reprints in Economics 3386, University of Munich, Department of Economics.
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